JULY 2013 E.B. 2013-13 BUSINESS SUMMARYpublications.dyson.cornell.edu/outreach/extension... · JULY...

JULY 2013 E.B. 2013-13

NEW YORK SMALL HERD FARMS, 120 COWS OR FEWER,

2012

Wayne A. Knoblauch Cathryn Dymond

Jason Karszes Mariane Kiraly

Charles H. Dyson School of Applied Economics and Management College of Agriculture and Life Sciences

Cornell University, Ithaca, New York 14853-7801

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The Dairy Farm Business Summary and Analysis Project is funded in

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Additional funding is provided by:

For additional copies, please contact:

Cathryn Dymond

Cornell University

Charles H. Dyson School of Applied Economics and Management

240F Warren Hall

Ithaca, NY 14853-7801

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2012 DAIRY FARM BUSINESS SUMMARY Small Herd Dairy Farms

120 Cows or Fewer Table of Contents

Page INTRODUCTION .................................................................................................................................................... 1 Program Objectives .................................................................................................................................... 1 Format Features .......................................................................................................................................... 1 PROGRESS OF THE FARM BUSINESS ............................................................................................................... 2 SUMMARY AND ANALYSIS OF THE FARM BUSINESS ................................................................................. 4 Business Characteristics ............................................................................................................................. 4 Income Statement ....................................................................................................................................... 4 Profitability Analysis .................................................................................................................................. 6 Farm and Family Financial Status .............................................................................................................. 9 Statement of Owner Equity ...................................................................................................................... 12 Cash Flow Statement ................................................................................................................................ 13 Repayment Analysis ................................................................................................................................. 15 Cropping Analysis .................................................................................................................................... 18 Dairy Analysis .......................................................................................................................................... 20 Capital and Labor Efficiency Analysis ..................................................................................................... 22 COMPARATIVE ANALYSIS OF THE FARM BUSINESS ................................................................................ 23 Progress of the Farm Business.................................................................................................................. 23 Regional Farm Business Chart ................................................................................................................. 26 Supplementary Information ...................................................................................................................... 27 New York State Farm Business Chart ...................................................................................................... 30 Financial Analysis Chart .......................................................................................................................... 32 Comparisons by Type of Barn and Herd Size .......................................................................................... 33 Herd Size Comparisons ............................................................................................................................ 33 IDENTIFY AND SET GOALS .............................................................................................................................. 40 GLOSSARY AND LOCATION OF COMMON TERMS ..................................................................................... 42 INDEX .................................................................................................................................................................. 45

2012 DAIRY FARM BUSINESS SUMMARY

SMALL HERD DAIRY FARMS*

INTRODUCTION Dairy farm managers throughout New York State have been participating in Cornell Cooperative Extension's farm business summary and analysis program since the early 1950's. Managers of each participating farm business receive a comprehensive summary and analysis of their farm business. The information in this report represents averages of the data submitted from dairy farms in New York for 2012 with herds of 120 cows or fewer.

Small farms are facing increasing management challenges in their efforts to control costs and remain profitable. This publication reports the average performance and characteristics of small farms and the average of the Top 50 Percent of those small farms with the highest rate of return on assets without appreciation. Thus, not only can the average perfor-mance of small farms be used as a benchmark, but the performance of the most profitable small farms as well. Identifying strengths and areas for improvement by comparing your business to that of similar farms is an important first step in focus-ing attention on ways to improve the business. Program Objective The primary objective of the dairy farm business summary, DFBS, is to help farm managers improve the business and financial management of their business through appropriate use of historical data and the application of modern farm business analysis techniques. This information can also be used to establish goals that enable the business to better fulfill its mission. In short, DFBS provides business and financial information needed in identifying and evaluating strengths and weaknesses of the farm business. Format Features This report follows the same general format as the 2012 DFBS individual farm report received by participating dairy farmers. The analysis tables have a column that compares the average to the top 50% of the farms by rate of return on all capital without appreciation. This report may be used by any dairy farm manager who wants to compare his or her busi-ness with the average data of small farms. The individual farm data, the averages and other data can then be used to estab-lish goals for the business. Non-DFBS participants can register and download a DFBS Data Check-in Form at http://dfbs.cornell.edu. After collecting the data on the form, it can be entered in the U. S. Top Dairies business summary program at the same web site to obtain a summary of their business. More information about the Dairy Farm Business Summary and Analysis Project may be found at http://dfbs.dyson.cornell.edu/ . This report features: (1) an income statement including accrual adjustments for farm business expenses and receipts, as well as measures of

profitability with and without appreciation,

(2) a complete balance sheet with analytical ratios;

(3) a statement of owner equity which shows the sources of the change in owner equity during the year;

(4) a cash flow statement and debt repayment ability analysis;

(5) an analysis of crop acreage, yields, and expenses;

(6) an analysis of dairy livestock numbers, production, and expenses;

(7) a capital and labor efficiency analysis; and

(8) progress of the farm business over the past two years. _________________ *The small herd summary is comprised of farms with 120 or fewer cows. Many counties had farms that met this criteria in 2012. This report was written by Wayne A. Knoblauch, Professor, Farm Management; Mariane Kiraly, Cooperative Exten-sion Educator in Delaware County; and Jason Karszes, Senior Extension Associate, Pro-Dairy. Cathryn Dymond was in charge of data and publication preparation.

http://dfbs.dyson.cornell.edu/

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PROGRESS OF THE FARM BUSINESS 2012 was a year of extremes across the country. Unusually dry weather in the Midwest and portions of New York greatly influenced corn and soybean yields making for record high prices for purchased grains with corresponding small inventories of ending stocks. Input costs increased dramatically and farmers had to make do with less capital expenditures and took less profit, if any, out of their farms. The same 25 farms participated in both 2011 and 2012 for this report. Average farm size grew 2.7% from 75 to 77 cows while heifer inventory stayed the same at 64. Tillable acres rose 2.7%, matching the increase in herd size. Hay DM ton/acres fell from 2.2 tons to 1.9 tons or 13.6% due to dry weather. Corn silage/acre increased 3.1% to 16.8 tons/acres due to advances in corn varieties’ ability to perform in dry weather. Milk sold per cow decreased 1.6% likely due to lesser quality/quantity of forage and expensive purchased grain. Worker equivalents rose 1.6% reflecting the need for more help with more cows, cropland and perhaps reflecting family members working off the farm. Cows per worker stayed the same at 31. Milk sold/worker fell slightly by 0.1%. Hired labor cost per hundredweight fell 3.8% percent from $1.32 to $1.27, reflecting a lowering of the average cost per worker equivalent on these farms; as cost per worker dropped 4%. Hired labor as a percent of milk sales rose 3.3% reflecting lower milk prices and more labor.

Grain and concentrate purchased as a percent of milk sales increased 17% from 29% to 34%. Grain and concen-trate per hundredweight of milk increased from $6.26 per hundredweight to $6.79 per hundredweight or 8.5%. Dairy feed and crop expense/cwt increased 8.8% in response to higher fuel, seed, and crop expenses. Total farm operating expenses per hundredweight sold increased 12.3% from $18.42 to $20.68. Interest costs fell 9.8%, driven by lower interest rates even as borrowed capital increased slightly. Milk marketing costs rose 4.3% with higher fuel and transportation costs passed on to farmers by haulers. The operating cost of producing milk per hundredweight grew 0.2% from $15.33 to $15.36 as chang-es to non-milk income largely offset the increase in input costs druing the year and as farmers monitored inputs closely. Farm capital per cow increased 3.3 percent and machinery and equipment per cow was down 1.6% with few new investments for replacement of equipment. An 11.1% decrease in the asset turnover ratio was the result of decreasing milk price coupled with a small decrease in milk production per cow.

Gross sales per hundredweight fell from $21.63 to $19.95 per hundredweight, or 7.8%. Gross milk sales per cow fell 8.7% from $4,279 per cow to $3,907 due to lower milk pricesand less milk per cow. At the same time, beef prices rose continually and that helped generate more cash flow. Dairy cattle sales per cow went from $209 to $243, an increase of 16.3%. Calf sales per cow declined from $35 to $10, a 71.4% decrease with farmers not wanting to feed excess heifers and a glut of animals on the market. An increase in government receipts from $0.58 per hundredweight to $0.85 per hundred-weight was due to MILC payments late in the year. Net farm income without appreciation fell from $68,888 to $45,330, a 34.2% decrease. Net farm income with ap-preciation fell to $59,577. Labor and management income per operator fell from from $20,647 to- $3,278 or 115.9%. A positive rate of return on equity of 0.4% was due to farmers stretching each dollar and forgoing purchases. The rate of re-turn on all capital without appreciation fell 78.6 percent. Farm net worth continues to rise (5.1%) due to an increase in land values. Farm debt per cow grew 6.8% from $2,779 to $2,967 as farmers tried to keep up with increased input costs and cap-ital investments. 2012 was a stressful time with farmers coping with high feed prices, lower milk income, and less money for family living, investments, or equipment replacement. Farms showed slightly positive returns, it was not without a lot of juggling and a reluctance to go into debt to feed expensive grain but rather to take a little less milk, make cows comfortable, and limit purchases and input costs to more closely match the conditions at hand.

The importance of trend analysis is to identify what areas changed, ask why they changed, and look at what you can do differently in the future to influence that change. Comparing your business’ performance with average data from these DFBS dairy farms can help you establish goals for your business. It is equally important to determine the progress your business has made over the past two or three years, to compare this progress to your goals, and to set goals for the fu-ture.

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PROGRESS OF THE FARM BUSINESS Same 25 Small Herd Dairy Farms, 2011 & 2012

Average of 25 Farms Percent Selected Factors 2011 2012 Change Size of Business Average number of cows 75 77 2.7 Average number of heifers 64 64 0.0 Milk sold, pounds 1,487,710 1,510,445 1.5 Worker equivalent 2.43 2.47 1.6 Total tillable acres 225 231 2.7 Rates of Production Milk sold per cow, pounds 19,783 19,586 -1.0 Hay DM per acre, tons 2.2 1.9 -13.6 Corn silage per acre, tons 16.3 16.8 3.1 Labor Efficiency & Costs Cows per worker 31 31 0.0 Milk sold per worker, pounds 612,226 611,516 -0.1 Hired labor cost per hundredweight $1.32 $1.27 -3.8 Hired labor cost per worker $8,060 $7,737 -4.0 Hired labor cost as % of milk sales 6.1% 6.3% 3.3 Cost Control Grain & concentrate purchased as % of milk sales 29% 34% 17.2 Grain & concentrate per hundredweight milk $6.26 $6.79 8.5 Dairy feed & crop expense per cwt. milk $7.92 $8.62 8.8 Labor & machinery costs per cow $1,908 $1,909 0.1 Total farm operating expenses per cwt. sold $18.42 $20.68 12.3 Interest costs per hundredweight milk $0.61 $0.55 -9.8 Milk marketing costs per cwt. milk sold $1.16 $1.21 4.3 Operating cost of producing cwt. of milk $15.33 $15.36 0.2 Capital Efficiency (average for the year) Farm capital per cow* $11,646 $12,026 3.3 Machinery & equipment per cow $2,496 $2,455 -1.6 Asset turnover ratio* 0.45 0.40 -11.1 Income Generation Gross milk sales per cow $4,279 $3,907 -8.7 Gross milk sales per hundredweight $21.63 $19.95 -7.8 Net milk sales per hundredweight $20.46 $18.74 -8.4 Dairy cattle sales per cow $209 $243 16.3 Dairy calf sales per cow $35 $10 -71.4 Government receipts per hundredweight $0.58 $0.85 46.6 Profitability Net farm income without appreciation $68,888 $45,330 -34.2 Net farm income with appreciation $93,149 $59,577 -36.0 Labor & management income per oper./manager $20,647 $-3,278 -115.9 Rate of return on equity capital with appreciation 6.0% 0.4% -93.3 Rate of return on all capital with appreciation 5.6% 1.2% -78.6 Financial Summary Farm net worth, end year $690,664 $726,163 5.1 Debt to asset ratio 0.23 0.24 4.3 Farm debt per cow $2,779 $2,967 6.8 *Rented farms are excluded from these factors.

4 SUMMARY AND ANALYSIS OF THE FARM BUSINESS

Business Characteristics Planning optimal management strategies is a crucial component of operating a successful farm. Various combina-tions of farm resources, enterprises, business arrangements, and management techniques are used by the dairy farmers. The following table shows important farm business characteristics and the number of farms with each characteristic.

BUSINESS CHARACTERISTICS 34 Small Herd Dairy Farms, 2012

Type of Farm Number Milking System Number Dairy 34 Bucket & carry 0 Part-time dairy 0 Dumping station 1 Dairy cash-crop 0 Pipeline 20 Certified organic milk producer 0 Herringbone parlor 7 Rotational grazing farms 11 Other parlor 6 Type of Ownership Number Production Records Number Owner 30 Testing service 26 Renter 4 On-farm system 2 Other 1 Type of Business Number None 5 Sole Proprietorship 28 Partnership 5 LLC 1 Business Record System Number Account Book 11 Type of Barn Number Accounting Service 3 Stanchion or Tie-Stall 20 On-farm computer 20 Freestall 14 Other 0 Combination 0 Milking Frequency Number Breed of Herd Percent 2 times per day 33 Holstein 86 3 times per day 0 Jersey 5 Other 1 Other 9 Income Statement In order for an income statement to accurately measure farm income, it must include cash transactions and accrual adjustments (changes in accounts payable, accounts receivable, inventories, and prepaid expenses). Cash paid is the actual cash outlay during the year and does not necessarily represent the cost of goods and services actually used in 2012. Change in inventory: Increases in inventories of supplies and other purchased inputs are subtracted in computing accrual expenses because they represent purchased inputs not actually used during the year. Decreases in purchased inventories are added to expenses because they represent inputs purchased in a prior year and used this year. Change in prepaid expenses (noted by <<) is a net change in non-inventory expenses that have been paid in advance of their use. For example, prepaid lease expense on the beginning of year balance sheet represents last year’s payment for use of the asset during this year. End of year prepaid expense represents payments made this year for next year’s use of the asset. Adding payments made last year for this year’s use of the asset, and subtracting payments made this year for next year’s use of the asset is accomplished by subtracting the difference.

5 CASH AND ACCRUAL FARM EXPENSES

34 Small Herd Dairy Farms, 2012 Expense Item

Cash Paid

-

Change in Inventory or Prepaid Expense

+

Change in Accounts Payable

=

Accrual Expenses

Hired Labor $ 19,139 $ 0 << $ -48 $ 19,091 Feed Dairy grain & concentrate 97,099 331 2,306 99,075 Dairy roughage 6,504 332 797 6,969 Nondairy 40 0 0 40 Professional nutritional services 40 0 << 0 40 Machinery Machinery hire, rent & lease 6,781 0 << 1,816 8,597 Machinery repairs & farm vehicle exp. 17,958 -13 62 18,033 Fuel, oil & grease 14,542 -108 242 14,891 Livestock Replacement livestock 3,359 0 << -272 3,087 Breeding 3,855 34 -2 3,819 Veterinary & medicine 6,955 -16 -104 6,867 Milk marketing 17,176 0 << 50 17,226 Bedding 3,909 -18 31 3,958 Milking supplies 6,388 30 -71 6,286 Cattle lease & rent 65 0 << 0 65 Custom boarding 1,190 0 << -35 1,156 bST 354 0 0 354 Livestock professional fees 1,636 -29 << 0 1,665 Other livestock expense 3,359 -16 -9 3,365 Crops Fertilizer & lime 7,057 -479 61 7,597 Seeds & plants 5,934 -154 -40 6,048 Spray, other crop expense 3,629 -125 -7 3,747 Crop professional fees 6 0 << 0 6 Real Estate Land, building & fence repair 4,901 -21 -11 4,911 Taxes 6,675 0 << 0 6,675 Rent & lease 4,543 0 << 0 4,543 Other Insurance 4,537 -184 << -50 4,671 Utilities (farm share) 8,803 0 << -2 8,801 Interest paid 7,167 0 << 0 7,167 Other professional fees 1,372 0 << 29 1,402 Miscellaneous 1,236 9 2 1,229 Total Operating $266,208 $-426 $4,745 $271,379 Expansion livestock 1,090 0 << 0 1,090 Extraordinary expense 361 0 << 0 361 Machinery depreciation 15,396 Building depreciation 4,879 TOTAL ACCRUAL EXPENSES $293,105 Change in accounts payable: An increase in accounts payable from beginning to end of year is added when calculating ac-crual expenses because these expenses were incurred (resources used) in 2012 but not paid for. A decrease is subtracted because it represents payment for resources used before 2012. Accrual expenses are an estimate of the costs of inputs, except operator/family labor and equity capital, actually used in this year's production. They are the cash paid, less changes in inventory and prepaid expenses, plus accounts payable.

6 CASH AND ACCRUAL FARM RECEIPTS

34 Small Herd Dairy Farms, 2012 Receipt Item

Cash

Receipts

+

Change in Inventory

+

Change in Accounts

Receivable

=

Accrual Receipts

Milk sales $ 281,220 $ 986 $ 282,206 Dairy cattle 18,189 $ 929 0 19,117 Dairy calves 2,300 -1,493 0 807 Other livestock 573 529 0 1,102 Crops 2,561 11,024 274 13,858 Government receipts 12,065 0 * -232 11,832 Custom machine work 394 0 394 Gas tax refund 145 0 145 Other 5,170 -91 5,079 Less nonfarm noncash capital** (-) 0 ** (-) 0 Total Receipts $ 322,617 $ 10,988 $ 936 $ 334,542 *Change in advanced government receipts. **Gifts or inheritances of cattle or crops included in inventory. Cash receipts include the gross value of milk checks received during the year plus all other payments received from the sale of farm products, services, and government programs. Nonfarm income is not included in calculating farm profitability.

Changes in inventory of assets produced by the business are calculated by subtracting beginning of year values from end of year values excluding appreciation. Increases in livestock inventory caused by herd growth and/or quality are added, and decreases caused by herd reduction and/or quality are subtracted. Changes in inventories of crops grown are also included. An increase in advanced government receipts is subtracted from cash income because it represents income received in 2012 for the 2013 crop year in excess of funds earned for 2012. Likewise, a decrease is added to cash government receipts be-cause it represents funds earned for 2012 but received in 2011.

Changes in accounts receivable are calculated by subtracting beginning year balances from end year balances. Payments in January 2013 for milk produced in December 2012 compared to January 2012 payments for milk produced in 2011 are in-cluded as a change in accounts receivable in determining accrual milk sales.

Accrual receipts represent the value of all farm commodities produced and services actually generated by the farm business during the year.

Profitability Analysis

Farm operators* contribute labor, management, and equity capital to their businesses and the combination of these resources, and the other resources used in the business, determines profitability. Farm profitability can be measured as the return to all family resources or as the return to one or more individual resources such as labor and management.

The return to any individual resource must be viewed as an estimate because the cost of other family resources must be approximated to calculate returns to the selected resource. For example, the costs of operator and family labor and management must be approximated to calculate the returns to equity capital.

* Operators are the individuals who are integrally involved in the operation and management of the farm business. They are not limited to those who are the owner of a sole proprietorship or are formally a member of the partnership or corpora-tion.

7

-$1,600-$1,400-$1,200-$1,000

-$800-$600-$400-$200

$0$200$400$600$800

$1,000$1,200$1,400

8,000 10,000 12,000 14,000 16,000 18,000 20,000 22,000 24,000 26,000

$ N

et F

arm

Inco

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Pounds Milk Sold Per Cow

NET FARM INCOME PER COW AND MILK PER COW 34 Small Herd Dairy Farms, 2012

Net farm income is the return to the farm operators and other unpaid family members for their labor, management, and eq-uity capital. It is the farm family's net annual return from working, managing, and financing the farm business. This is not a measure of cash available from the year's business operation. Cash flow is evaluated later in this report.

Net farm income is computed both with and without appreciation. Appreciation represents the change in values caused by annual changes in prices of livestock, machinery, real estate inventory, and stocks and certificates (other than Farm Credit). Appreciation is a major factor contributing to changes in farm net worth and must be included for a complete profitability analysis.

NET FARM INCOME 34 Small Herd Dairy Farms, 2012

Average 34 Farms Top 50% Farms* Item Total Per Cow Total Per Cow Total accrual receipts $ 334,542 $ 426,048 Appreciation: Livestock 1,483 2,545 Machinery 1,585 2,049 Real Estate 10,369 10,472 Other Stock & Certificates 135 0 Total Including Appreciation $ 348,113 $ 441,113 Total accrual expenses - 293,105 - 347,570 Net Farm Income (with appreciation) $ 55,008 $ 753 $ 93,543 $1,096 Net Farm Income (without appreciation) $ 41,437 $ 567 $ 78,570 $ 919

*Top 50% of small herd farms by rate of return on all assets without appreciation. The chart below shows the relationship between net farm income per cow (without appreciation) and pounds of milk sold per cow. Higher net farm incomes can be achieved across a range of production levels as a result of different management systems, such as grazing, being utilized by the participating dairies.

8 Labor and management income is the return which farm operators receive for their labor and management used in the farm business. Appreciation is not included as part of the return to labor and management because it results from ownership of assets rather than management of the farm business. Labor and management income is calculated by deducting a charge for unpaid family labor and the opportunity cost of equity capital, at a real interest rate of five percent, from net farm income excluding appreciation. The interest charge of five percent reflects the long-term average rate of return above inflation that a farmer might expect to earn in comparable risk investments.

LABOR AND MANAGEMENT INCOME

34 Small Herd Dairy Farms, 2012 Item Average 34 Farms Top 50% Farms

Net farm income without appreciation $ 41,437 $ 78,478

Family labor unpaid @ $2,550 per month - 12,686 - 14,269

Interest on $629,123 average equity capital @ 5% real rate

($731,483 average equity capital for top 50% farms)

- 31,456 - 36,574

Labor & Management Income per farm (1.22 Operators/farm) $ -2,706 $ 27,635

(1.18 operators per farm for top 50% farms)

Labor & Management Income per Operator/Manager $ -2,218 $ 23,419

Labor and management income per operator averaged $-2,218 on these 34 farms in 2012. The range in labor and manage-ment income per operator was from less than $-214,300 to more than $51,400. Returns to labor and management were less than $0 on 38 percent of the farms. Labor and management incomes per operator were between $0 and $40,000 on 53 per-cent of the farms while 9 percent had labor and management incomes per operator greater than $40,000.

24%

15%

35%

18%

9%

0%

5%

10%

15%

20%

25%

30%

35%

40%

<-20 -20 to 0 0 to 20 20 to 40 >40

Perc

ent o

f Far

ms

Labor and Management Incomes Per Operator (thousand dollars)

DISTRIBUTION OF LABOR & MANAGEMENT INCOMES PER OPERATOR 34 Small Herd Dairy Farms, 2012

9 Return on equity capital measures the net return remaining for the farmer's equity or owned capital after a charge has been made for the owner-operator's labor and management. The earnings or amount of net farm income allocated to labor and management is the opportunity cost of operators' labor and management estimated by the cooperators. Return on equity capital is calculated with and without appreciation. The rate of return on equity capital is determined by dividing the amount returned by the average farm net worth or equity capital. Rate of return on total capital is calculated by adding in-terest paid to the return on equity capital and then dividing by average farm assets. Net farm income from operations ratio is net farm income (without appreciation) divided by total accrual receipts.

RETURN ON EQUITY CAPITAL AND RETURN ON TOTAL CAPITAL 34 Small Herd Dairy Farms, 2012

Item

Average 34 Farms

Top 50% Farms

Net farm income with appreciation $ 55,008 $ 93,543

Family labor unpaid @ $2,550 per month - 12,686 - 14,269

Value of operators’ labor & management - 42,926 - 43,382

Return on equity capital with appreciation $ -605 $ 35,892

Interest paid + 7,167 + 8,652

Return on total capital with appreciation $ 6,562 $ 44,544

Return on equity capital without appreciation $ -14,176 $ 20,826

Return on total capital without appreciation $ -7,009 $ 29,478

Rate of return on average equity capital:

with appreciation -0.1% 4.9%

without appreciation -2.3% 2.8%

Rate of return on average total capital:

with appreciation 0.8% 4.6%

without appreciation -0.9% 3.0% Net farm income from operations ratio 0.12 0.18 Farm and Family Financial Status

The first step in evaluating the financial position of the farm is to construct a balance sheet which identifies and values all the assets and liabilities of the business. The second step is to evaluate the relationship between assets, liabilities, and net worth and changes that occurred during the year.

Financial lease obligations are included in the balance sheet. The present value of all future payments is listed as a liability since the farmer is committed to make the payments by signing the lease. The present value is also listed as an asset, repre-senting the future value the item has to the business. For 2012, lease payments were discounted by 7 percent to obtain their present value.

Advanced government receipts are included as current liabilities. Government payments received in 2012 that are for par-ticipation in the 2013 program are the end year balance and payments received in 2011 for participation in the 2012 pro-gram are the beginning year balance.

Current Portion or principal due in the next year for intermediate and long term debt is included as a current liability.

10 2012 FARM BUSINESS & NONFARM BALANCE SHEET

34 Small Herd Dairy Farms, 2012

Farm Assets

Jan. 1

Dec. 31

Farm Liabilities & Net Worth

Jan. 1

Dec. 31

Current Current Farm cash, checking $ 7,774 $ 6,804 Accounts payable $ 11,226 $ 15,997 & savings Operating debt 5,015 6,199 Accounts receivable 23,144 24,081 Short Term 1,072 2,848 Prepaid expenses 235 21 Advanced govt. receipts 0 0 Feed & supplies 64,614 75,426 Current Portion: ________ ________ Intermediate 20,674 23,488 Long Term 2,489 3,430 Total Current $ 95,767 $ 106,332 Total Current $ 40,476 $ 51,963 Intermediate Intermediate Dairy cows: Structured debt owned $ 102,868 $ 104,279 1-10 years $ 119,013 $ 88,558 leased 0 252 Financial lease Heifers 53,980 53,488 (cattle/machinery) 276 309 Bulls & other livestock 1,653 2,182 Farm Credit stock 731 731 Mach. & equip. owned 171,166 170,271 Total Intermediate $ 120,019 $ 89,598 Mach. & equip. leased 276 57 Farm Credit stock 731 731 Other stock/certificate 18,802 20,335 Total Intermediate $ 349,475 $ 351,593 Long Term Long Term Structured debt Land & buildings: >10 years $ 40,006 $ 57,029 owned $ 352,474 $ 389,337 Financial lease leased 0 0 (structures) 0 0 Total Long Term $ 352,474 $ 389,337 Total Long Term $ 40,006 $ 57,029 Total Farm Liabilities $ 200,501 $ 198,590 Total Farm Assets $ 797,716 $ 847,262 FARM NET WORTH $ 597,215 $ 648,672 Nonfarm Assets, Liabilities & Net Worth (Average of 17 farms reporting) Assets

Jan. 1

Dec. 31

Liabilities & Net Worth

Jan. 1

Dec. 31

Personal cash, checking Nonfarm Liabilities $ 6,883 $ 5,864 & savings $ 27,684 $ 27,214 Cash value life insurance 22,137 23,434 Nonfarm real estate 26,176 26,176 Auto (personal share) 8,765 7,882 Stocks & bonds 37,069 37,377 Household furnishings 9,588 9,588 All other nonfarm assets 9,454 13,051 Total Nonfarm Assets $140,874 $144,722 NONFARM NET WORTH $133,990 $138,858 Farm & Nonfarm Assets, Liabilities, and Net Worth*

Jan. 1

Dec. 31

Total Assets $ 938,590 $ 991,984 Total Liabilities 207,384 204,454 TOTAL FARM & NONFARM NET WORTH $ 731,206 $ 787,530 *Assumes that average nonfarm assets and liabilities for the nonreporting farms were the same as for those reporting.

11 Balance sheet analysis involves examination of relative asset and debt levels for the business. Percent equity is calculated by dividing end of year net worth by end of year assets and multiplying by 100. The debt to asset ratio is compiled by di-viding liabilities by assets. Low debt to asset ratios reflect business solvency and the potential capacity to borrow. The leverage ratio is the dollar of debt per dollar of equity, computed by dividing total farm liabilities by farm net worth. Debt levels per productive unit represent old standards that are still useful if used with measures of cash flow and repayment ability. A current ratio of less than 1.5 or that has been falling warrants additional evaluation. The amount of working cap-ital that is adequate must be related to the size of the farm business.

BALANCE SHEET ANALYSIS 34 Small Herd Dairy Farms, 2012

Item Average 34 Farms Top 50% Farm Financial Ratios - Farm: Percent equity 77% 74% Debt/asset ratio: total 0.23 0.26 long-term 0.15 0.17 intermediate/current 0.31 0.33 Leverage ratio 0.31 0.34 Current ratio 2.05 1.91 Working capital $54,369 As % of total Expenses: 19% $57,685 17% Farm Debt Analysis: Accounts payable as % of total debt 8% 5% Long-term liabilities as a % of total debt 29% 31% Current & intermediate liabilities as a % of total debt 71% 69% Cost of term debt (weighted average) 5.0% 4.1% Farm Debt Levels:

Per Cow

Per Tillable Acre Owned

Per Cow


Total farm debt $2,737 $1,881 $3,013 $2,168 Long-term debt 786 540 942 678 Intermediate & long term 2,021 1,389 2,286 1,645 Intermediate & current debt 1,951 1,341 2,071 1,490 Farm inventory balance is an accounting of the value of assets used on the balance sheet and the changes that occur from the beginning to end of year. Changes in the livestock inventory are included in the dairy analysis. Net investment indi-cates whether the capital stock is being expanded (positive) or depleted (negative).

FARM INVENTORY BALANCE 34 Small Herd Dairy Farms, 2012

Item Average 34 Farms Real Estate Machinery & Equipment Value beginning of year $ 352,474 $ 171,166 Purchases $ 37,247* $ 18,252 Gift & inheritance + 0 + 0 Lost capital - 5,874 Sales - 0 - 5,335 Depreciation - 4,879 - 15,396 Net investment = 26,494 = -2,480 Appreciation + 10,369 + 1,585 Value end of year $ 389,337 $ 170,271 *$17,348 land and $19,899 buildings and/or depreciable improvements.

12 The Statement of Owner Equity has two purposes. It allows (1) verification that the accrual income statement and market value balance sheet are consistent (in accountants terms, they reconcile) and (2) identification of the causes of change in equity that occurred on the farm during the year. The Statement of Owner Equity allows you to determine to what degree the change in equity was caused by (1) earnings from the business, and nonfarm income, in excess of withdrawals being retained in the business (called retained earnings), (2) outside capital being invested in the business or farm capital being removed from the business (called contributed/withdrawn capital) , (3) increases or decreases in the value (price) of assets owned by the business (called change in valuation equity), and (4) the error in the business cash flow accounting.

Retained earnings is an excellent indicator of farm generated financial progress.

STATEMENT OF OWNER EQUITY (RECONCILIATION) 34 Small Herd Dairy Farms, 2012

Item

Average 34 Farms

Top 50% Farms

Beginning of year farm net worth $609,574 $701,155 Net farm income without appreciation $ 41,437 $ 78,478 +Nonfarm cash income + 9,114 + 7,309 -Personal withdrawals & family expenditures excluding nonfarm borrowings - 36,484 - 45,103 RETAINED EARNINGS + $ 14,067 + $ 40,684 Nonfarm noncash transfers to farm $ 0 $ 0 +Cash used in business from nonfarm capital + 15,607 + 11,753 -Note or mortgage from farm real estate sold (nonfarm) - 0 - 0 CONTRIBUTED/WITHDRAWN CAPITAL + $ 15,607 + $ 11,753 Appreciation $ 13,571 $ 15,065 -Lost capital - 5,874 - 6,551 CHANGE IN VALUATION EQUITY + $ 7,697

+$ 8,514

IMBALANCE/ERROR - $ -1,726 - $ 295 End of year net worth* = $ 648,672 =$ 761,811 Change in Net Worth Without appreciation $ 25,527 $45,591 With appreciation $ 39,098 $60,656 *May not add to total due to rounding.

13 Cash Flow Statement Completing an annual cash flow statement is an important step in understanding the sources and uses of funds for the business. Understanding last year's cash flow is the first step toward planning and managing cash flow for the current and future years. The annual cash flow statement is structured to show net cash provided by operating activities, investing activities, financing activities and from reserves. All cash inflows and outflows, including beginning and end balances, are included. Therefore, the sum of net cash provided from all four activities should be zero. Any imbalance is the error from incorrect accounting of cash inflows/outflows.

ANNUAL CASH FLOW STATEMENT

34 Small Herd Dairy Farms, 2012 Item Average 34 Farms Cash Flow from Operating Activities Cash farm receipts $ 322,617 - Cash farm expenses 266,208 - Extraordinary expense 361 = Net cash farm income $ 56,048 Personal withdrawals & family expenses including nonfarm debt payments $ 36,481 - Nonfarm income 9,114 - Net cash withdrawals from the farm $ 27,367 = Net Provided by Operating Activities $ 28,681 Cash Flow From Investing Activities Sale of assets: machinery $ 5,335 + real estate 0 + other stock & cert. 121 = Total asset sales $ 5,456 Capital purchases: expansion livestock $ 1,090 + machinery 18,252 + real estate 37,247 + other stock & cert. 1,519 - Total invested in farm assets $ 58,107 = Net Provided by Investment Activities $ -52,651 Cash Flow From Financing Activities Money borrowed (intermediate & long term) $ 41,319 + Money borrowed (short term) 2,395 + Increase in operating debt 1,185 + Cash from nonfarm capital used in business 15,607 + Money borrowed - nonfarm -3 = Cash inflow from financing $ 60,503 Principal payments (intermediate & long term) $ 38,858 + Principal payments (short term) 618 + Decrease in operating debt 0 - Cash outflow for financing $ 39,475 = Net Provided by Financing Activities $ 21,027 Cash Flow From Reserves Beginning farm cash, checking & savings $ 7,774 - Ending farm cash, checking & savings 6,804 = Net Provided from Reserves $ 970 Imbalance (error) $ -1,974

14

ANNUAL CASH FLOW STATEMENT Top 50% Small Herd Dairy Farms, 2012

Item Top 50% Farms Cash Flow from Operating Activities Cash farm receipts $ 394,847 - Cash farm expenses 316,410 - Extraordinary expense 0 = Net cash farm income $ 78,437 Personal withdrawals & family expenses including nonfarm debt payments $ 45,098 - Nonfarm income 7,309 - Net cash withdrawals from the farm $ 37,789 = Net Provided by Operating Activities $ 40,648 Cash Flow From Investing Activities Sale of assets: machinery $ 326 + real estate 0 + other stock & cert. 0 = Total asset sales $ 326 Capital purchases: expansion livestock $ 1,209 + machinery 21,748 + real estate 57,191 + other stock & cert. 2,255 - Total invested in farm assets $ 82,403 = Net Provided by Investment Activities $ -82,076 Cash Flow From Financing Activities Money borrowed (intermediate & long term) $ 60,081 + Money borrowed (short term) 2,507 + Increase in operating debt 1,173 + Cash from nonfarm capital used in business 11,753 + Money borrowed - nonfarm -5 = Cash inflow from financing $ 75,509 Principal payments (intermediate & long term) $ 36,393 + Principal payments (short term) 119 + Decrease in operating debt 0 - Cash outflow for financing $ 36,512 = Net Provided by Financing Activities $ 38,996 Cash Flow From Reserves Beginning farm cash, checking & savings $ 11,350 - Ending farm cash, checking & savings 9,067 = Net Provided from Reserves $ 2,283 Imbalance (error) $ 148

15 Repayment Analysis A valuable use of cash flow analysis is to compare the debt payments planned for the last year with the amount actually paid. The measures listed below provide a number of different perspectives on the repayment performance of the business. However, the critical question to many farmers and lenders is whether planned payments can be made in 2013. The cash flow projection worksheet on the next page can be used to estimate repayment ability, which can then be com-pared to planned 2013 debt payments shown below.

FARM DEBT PAYMENTS PLANNED Small Herd Dairy Farms, 2011 & 2012

Same 29 Dairy Farms Same 16 Top 50% Farms 2012 Payments Planned 2012 Payments Planned Debt Payments Planned Made 2013 Planned Made 2013 Long-term

$ 5,336

$ 4,720

$ 6,161

$ 6,861

$ 5,748

$ 8,073

Intermediate-term 29,123 38,063 28,161 36,371 38,725 38,296 Short-term 1,145 783 1,128 1,382 162 664 Operating (net reduction)

0

361

86

0

654

63

Accounts payable (net reduction)

0

897

414

0

900

0

Total $ 35,605 $ 44,823 $ 35,950 $ 44,615 $ 46,188 $ 47,095 Per cow

$ 492

$ 619

$ 519

$ 537

Per cwt. 2012 milk $ 2.57 $ 3.23 $ 2.48 $ 2.57 Percent of total 2012 receipts

11%

14%

11%

11%

Percent of 2012 milk receipts

13%

16%

13%

13%

The cash flow coverage ratio and debt coverage ratio measure the ability of the farm business to meet its planned debt payments schedule. The ratios show the percentage of payments planned for 2012 (as of December 31, 2011) that could have been made with the amount available for debt service in 2012. Farmers who did not participate in DFBS in 2011 have their 2012 cash flow coverage ratio based on planned debt payments for 2013.

COVERAGE RATIOS Same 29 Small Herd Dairy Farms, 2011 & 2012

Item Average Item Average Cash Flow Coverage Ratio Debt Coverage Ratio Cash farm receipts $316,821 Net farm income (without appreciation) $43,754 - Cash farm expenses 259,843 + Depreciation 20,833 + Interest paid (cash) 7,376 + Interest paid (accrual) 7,376 - Net personal withdrawals from farm* 25,706 - Net personal withdrawals from farm* 25,706 (A) = Amount Available for Debt Service $ 38,648 (A’) = Repayment Capacity $46,257 (B) = Debt Payments Planned for 2012 (B) = Debt Payments Planned for 2012 (as of December 31, 2011) $ 35,605 (as of December 31, 2011) $35,605 (A/ B)= Cash Flow Coverage Ratio for 2012 1.09 (A’/B)= Debt Coverage Ratio for 2012 1.30 -------------------------------------------------------------------------------------------------------------------------------------------------

Same 16 Top 50% Dairy Farms, 2011 & 2012 (A) = Amount Available for Debt Service $49,485 (A’) = Repayment Capacity $76,061 (B) = Debt Payments Planned for 2012 $44,615 (B) = Debt Payments Planned for 2012 $44,615 (A/ B)= Cash Flow Coverage Ratio for 2012 1.11 (A’/B)= Debt Coverage Ratio for 2012 1.70 *Personal withdrawals and family expenditures less nonfarm income and nonfarm money borrowed. If family withdrawals are excluded, or inaccurately included, the cash flow coverage ratio will be incorrect.

16 ANNUAL CASH FLOW WORKSHEET

34 Small Herd Dairy Farms, 2012 Average 34 Farms Item Per Cow Per Cwt. Total Number cows and cwt. milk 73 14,055 Accrual Operating Receipts Milk $3,861 $20.08 $282,206 Dairy cattle 262 1.36 19,117 Dairy calves 11 0.06 807 Other livestock 15 0.08 1,102 Crops 190 0.99 13,858 Miscellaneous receipts 239 1.24 17,451 Total $4,577 $23.80 $334,542 Accrual Operating Expenses Hired labor $ 261 $ 1.36 $ 19,091 Dairy grain & concentrate 1,356 7.05 99,075 Dairy roughage 95 0.50 6,969 Nondairy feed 1 0.00 40 Professional nutritional services 1 0.00 40 Machinery hire/rent/lease 118 0.61 8,597 Machinery repair & farm vehicle expense 247 1.28 18,033 Fuel, oil & grease 204 1.06 14,891 Replacement livestock 42 0.22 3,087 Breeding 52 0.27 3,819 Veterinary & medicine 94 0.49 6,867 Milk marketing 236 1.23 17,226 Bedding 54 0.28 3,958 Milking supplies 86 0.45 6,286 Cattle lease 1 0.00 65 Custom boarding 16 0.08 1,156 bST expense 5 0.03 354 Livestock professional fees 23 0.12 1,665 Other livestock expense 46 0.24 3,365 Fertilizer & lime 104 0.54 7,597 Seeds & plants 83 0.43 6,048 Spray & other crop expenses 51 0.27 3,747 Crop professional fees 0 0.00 6 Land, building, fence repair 67 0.35 4,911 Taxes 91 0.47 6,675 Real estate rent/lease 62 0.32 4,543 Insurance 64 0.33 4,671 Utilities 120 0.63 8,801 Other professional fees 19 0.10 1,402 Miscellaneous 17 0.09 1,229 Total Less Interest Paid $3,615 $18.80 $264,212 Net Accrual Operating Income (without interest paid) 962 5.00 70,330 - Change in livestock/crop inventory* 150 0.78 10,988 - Change in accounts receivable 13 0.07 936 - Change in feed/supply inventory** -6 -0.03 -426 + Change in accts. payable*** 65 0.34 4,745 NET CASH FLOW $ 870 $ 4.52 $ 63,576 - Net personal withdrawals from farm (see footnote on p. 15) 351 1.82 25,619 Available for Farm Debt Payments & Investments $ 519 $ 2.70 $ 37,957 - Farm debt payments 651 3.38 47,573 Available for Farm Investment $-132 $-0.68 $ -9,615 - Capital purchases: cattle, machinery & improvements 795 4.13 58,107 Additional Capital Needed $ 927 $ 4.82 $ 67,722 *Includes change in advance government receipts. **Includes change in prepaid expenses. ***Excludes change in interest account payable.

17 ANNUAL CASH FLOW WORKSHEET

Top 50% Small Herd Dairy Farms, 2012 Average Top 50% Farms Item Per Cow Per Cwt. Total Number of cows or cwt. milk 85 17,679 Accrual Operating Receipts Milk $4,135 $19.96 $352,934 Dairy cattle 376 1.82 32,129 Dairy calves 13 0.06 1,108 Other livestock 11 0.06 977 Crops 210 1.01 17,924 Miscellaneous receipts 246 1.19 20,977 Total $4,992 $24.10 $426,048 Accrual Operating Expenses Hired labor $ 234 $ 1.13 $ 19,970 Dairy grain & concentrate 1,371 6.62 117,025 Dairy roughage 117 0.57 10,010 Nondairy feed 0 0.00 0 Professional nutritional services 1 0.00 80 Machinery hire/rent/lease 128 0.62 10,957 Machinery repair & farm vehicle expense 247 1.19 21,042 Fuel, oil & grease 208 1.01 17,779 Replacement livestock 30 0.14 2,552 Breeding 59 0.28 5,019 Veterinary & medicine 87 0.42 7,383 Milk marketing 251 1.21 21,462 Bedding 67 0.32 5,718 Milking supplies 85 0.41 7,245 Cattle lease 2 0.01 129 Custom boarding 11 0.05 947 bST expense 5 0.02 426 Livestock professional fees 20 0.10 1,749 Other livestock expense 50 0.24 4,250 Fertilizer & lime 128 0.62 10,902 Seeds & plants 90 0.43 7,653 Spray & other crop expenses 45 0.22 3,878 Crop professional fees 0 0.00 12 Land, building, fence repair 62 0.30 5,302 Taxes 80 0.39 6,852 Real estate rent/lease 60 0.29 5,125 Insurance 61 0.29 5,208 Utilities 122 0.59 10,443 Other professional fees 23 0.11 1,993 Miscellaneous 19 0.09 1,662 Total Less Interest Paid $3,665 $17.69 $312,775 Net Accrual Operating Income (without interest paid) 1,327 6.41 113,273 - Change in livestock/crop inventory* 315 1.52 26,914 - Change in accounts receivable 50 0.24 4,287 - Change in feed/supply inventory** -15 -0.07 -1,311 + Change in accounts payable*** 43 0.21 3,706 NET CASH FLOW $1,020 $ 4.93 $ 87,089 - Net personal withdrawals from farm (see footnote p.15) 442 2.13 37,714 Available for Farm Debt Payments & Investments $ 578 $ 2.79 $ 49,374 - Farm debt payments 544 2.63 46,434 Available for Farm Investment $ 34 $ 0.17 $ 2,941 - Capital purchases: cattle, machinery & improvements 965 4.66 82,403 Additional Capital Needed $ 931 $ 4.49 $ 79,462 *Includes change in advance government receipts. **Includes change in prepaid expenses. ***Excludes change in interest account payable.

18 Cropping Analysis The cropping program is an important part of the dairy farm business and often represents opportunities for im-proved productivity and profitability. A complete evaluation of what the available land resources are, how they are being used, the level of crop yields, and what it costs to produce crops is important in evaluating alternative cropping and feed purchasing alternatives.

LAND RESOURCES AND CROP PRODUCTION 34 Small Herd Dairy Farms, 2012

Item

Average 34 Farms

Top 50% Farm

Land Owned Rented Total Owned Rented Total Tillable 106 114 220 121 137 258 Nontillable 25 14 39 22 11 33 Other nontillable 79 11 90 89 1 90 Total

209 139 348 233 148 381

Crop Yields Farms Acres* Production/Acre Farms Acres Production/Acre Hay crop 32 159 1.93 tn DM 16 183 1.72 tn DM Corn silage 26 64 16.61 tn 13 82 16.96 tn 5.65 tn DM 5.86 tn DM Other forage 3 28 3.95 tn DM 1 35 4.51 tn DM Total forage 32 213 2.86 tn DM 16 252 2.84 tn DM Corn grain 7 21 117 bu 3 28 131 bu Oats 0 0 0 bu 0 0 0 bu Wheat 2 20 48 bu 0 0 0 bu Other crops 6 22 1 33 Tillable pasture 6 52 3 79 Idle 3 15 0 0 Total Tillable Acres 34 220 17 258 *This column represents the average acreage for the farms producing that crop. Average acreages including those farms

not producing were hay crop 150, corn silage 49, corn grain 4, oats 0, tillable pasture 9, and idle 1. Average crop acres and yields are for the farms reporting each crop. Yields of forage crops have been converted to tons of dry matter using dry matter coefficients reported by the farmers. Grain production has been converted to bushels of dry grain equivalent based on dry matter information provided. The following crop/dairy ratios indicate the relationship between forage production, forage production resources, and the dairy herd.

CROP/DAIRY RATIOS 32 Small Herd Dairy Farms, 2012**

Item

Average 32 Farms

Top 50% Farm

Total tillable acres per cow 3.12 3.11 Total forage acres per cow 2.86 2.86 Harvested forage dry matter, tons per cow 8.18 8.11 **Excludes farms that do not harvest forages.

19 Cropping Analysis (continued) Crop input costs per tillable acre are reported in the table below. The chart below shows the relationship between total forage dry matter per acre and total crop input costs. Intensive grazing was used on 11 farms, 6 of which are in the "top 50% farms" group.

CROP RELATED ACCRUAL EXPENSES Small Herd Dairy Farms Reporting Forage Production, 2012

Average 32 farms Top 50% Farms Item Total Per Tillable Acre Number of farms reporting 32 16 Average number of acres 216 232 Fertilizer & lime expenses $ 36.98 $ 46.96 Seeds & plants 27.16 31.66 Spray & other crop expenses 17.10 15.35 TOTAL $ 81.24 $ 93.97

Most machinery costs are associated with crop production and should be analyzed with the crop enterprise. Total machin-ery expenses include the major fixed costs (interest and depreciation), as well as the accrual operating costs. Although ma-chinery costs have not been allocated to individual crops, they are shown below per total tillable acre.

ACCRUAL MACHINERY EXPENSES 32 Small Herd Dairy Farms That Grow Forages, 2012

Average 32 Farms Top 50% Farms Machinery Expense

Total Expenses

Per Tillable Acre

Total Expenses

Per Tillable Acre

Fuel, oil & grease $ 15,566 $ 66.82 $ 18,890 $ 68.87 Machinery repair & vehicle expense 18,935 81.28 22,300 81.30 Machine hire, rent & lease 8,573 36.80 11,403 41.57 Interest (5%) 8,938 38.37 10,728 39.11 Depreciation 16,046 68,87 19,223 70.08 Total $ 68,058 $ 292.14 $ 82,545 $ 300.93

$0

$50

$100

$150

$200

1 1.5 2 2.5 3 3.5 4 4.5 5 5.5 6Tot

al C

rop

Exp

ense

Per

Till

able

Acr

e

Total Tons Forage Dry Matter Per Acre

CROP EXPENSE PER ACRE AND TOTAL FORAGE PRODUCTION PER ACRE 32 Small Herd Farms That Grow Forages, 2012

20 Dairy Analysis Analysis of the dairy enterprise can reveal strengths and weaknesses of the dairy farm business. Information on this page should be used in conjunction with DHI and other dairy production information. Changes in dairy herd size and market values that occur during the year are identified in the table below. The change in inventory value without apprecia-tion is attributed to physical changes in herd size and quality. Any change in inventory is included as an accrual farm re-ceipt when calculating all of the profitability measures on pages 8 and 9.

DAIRY HERD INVENTORY 34 Small Herd Dairy Farms, 2012

Dairy Cows Heifer Bred Open Calves Item No. Value No. Value No. Value No. Value Average 34 Farms: Beg. year (owned) 72 $ 102,868 20 $ 26,032 23 $ 17,777 19 $ 10,171 + Change w/o apprec. 1,022 -733 640 -1,493 + Appreciation 388 46 1,476 -428 End year (owned) 72 $ 104,279 19 $ 25,345 24 $ 19,893 17 $ 8,249 End including leased 73 Average number 73 61 (all age groups) Top 50% Farms: Beg. year (owned) 82 $121,756 24 $ 30,541 24 $ 20,631 24 $ 13,488 + Change w/o apprec. 10,415 2,228 1,485 -1,780 + Appreciation 0 31 3,006 -492 End year (owned) 88 $ 132,171 25 $ 32,800 27 $ 25,122 22 $ 11,216 End including leased 87 Average number 85 73 (all age groups) Total milk sold and milk sold per cow are extremely valuable measures of size and productivity, respectively, on the dairy farm. These measures of milk output are based on pounds of milk marketed during the year. Farm managers on DHI should compare milk sold per cow with their rolling herd average on the test date nearest December 31 to see how close the DHI estimate of milk produced is to actual milk sales.

MILK PRODUCTION 34 Small Herd Dairy Farms, 2012

Item Average 34 Farms Top 50% Farms Total milk sold, lbs. 1,405,521 1,767,944 Milk sold per cow, lbs. 19,230 20,714 Average milk plant test, percent butterfat (average of farms reporting) 2.55 2.75 Monitoring and evaluating culling practices and experiences on an annual basis are important herd management tools. Culling rate can have an affect on both milk per cow and profitability.

ANIMALS LEAVING THE HERD 34 Small Herd Dairy Farms, 2012

Average 34 Farms Top 50% Farms Item Number Percent* Number Percent* Cows sold for beef 17 23.9 20 23.6 Cows sold for dairy 3 4.6 1 1.5 Cows died 3 4.2 3 3.7 Culling rate** 28.0 27.0 *Percent of average number of cows in the herd. **Cows sold for beef plus cows died.

21 The cost of producing milk has been compiled using the whole farm method and is featured in the following table. Accrual receipts from milk sales can be compared with the accrual costs of producing milk per cow and per hundredweight of milk. Using the whole farm method, operating costs of producing milk are estimated by deducting nonmilk accrual receipts from total accrual operating expenses including expansion livestock purchased. Purchased inputs cost of producing milk are the operating costs plus depreciation. Total costs of producing milk include the operating costs of producing milk plus depre-ciation on machinery and buildings, the value of unpaid family labor, the value of operators' labor and management, and the interest charge for using equity capital.

ACCRUAL RECEIPTS FROM DAIRY, COSTS OF PRODUCING MILK, AND PROFITABILITY


Average 34 Farms Top 50% Farms Item Total Per Cow Per Cwt. Total Per Cow Per Cwt.

Accrual Cost of Producing Milk Operating costs $ 220,133 $ 3,012 $ 15.66 $ 249,521 $ 2,924 $ 14.11 Purchased inputs costs $ 240,770 $ 3,294 $ 17.13 $ 274,456 $ 3,216 $ 15.52 Total costs $ 327,839 $ 4,485 $ 23.33 $ 368,682 $ 4,320 $ 20.85 Accrual Receipts From Milk $ 282,206 $ 3,861 $ 20.08 $ 352,934 $ 4,135 $ 19.96 Net Milk Receipts $ 264,981 $ 3,625 $ 18.85 $ 331,472 $ 3,884 $ 18.75 Net Farm Income without Appreciation $ 41,437 $ 567 $ 2.95 $ 78,478 $ 919 $ 4.44 Net Farm Income with Appreciation $ 55,008 $ 753 $ 3.91 $ 93,543 $ 1,096 $ 5.29

The accrual operating expenses most commonly associated with the dairy enterprise are listed in the table below. Feed and crop expenses include total purchased dairy feed plus fertilizer, seeds, spray and other crop expenses.

DAIRY RELATED ACCRUAL EXPENSES 34 Small Herd Dairy Farms, 2012

Average 34 Farms Top 50% Farms Item Per Cow Per Cwt. Per Cow Per Cwt.

Purchased dairy grain & concentrate $ 1,356 $ 7.05 $ 1,371 $ 6.62 Purchased dairy roughage 95 0.50 117 0.57 Total Purchased Dairy Feed $ 1,451 $ 7.55 $ 1,488 $ 7.19 Purchased grain & conc. as % of milk receipts 35% 33% Purchased feed & crop expense $ 1,689 $ 8.78 $ 1,751 $ 8.46 Purchased feed & crop expense as % of milk receipts 43% 43% Breeding $ 52 $ 0.27 $ 59 $ 0.28 Veterinary & medicine 94 0.49 87 0.42 Milk marketing 236 1.23 251 1.21 Bedding 54 0.28 67 0.32 Milking supplies 86 0.45 85 0.41 Cattle lease 1 0.00 2 0.01 Custom boarding 16 0.08 11 0.05 bST 5 0.03 5 0.02 Livestock professional fees 23 0.12 20 0.10 Other livestock expense 46 0.24 50 0.24

22 Capital and Labor Efficiency Analysis

Capital efficiency factors measure how effectively the capital is being used in the farm business. Measures of la-bor efficiency are key indicators of management's success in generating products per unit of labor input.

CAPITAL EFFICIENCY 34 Small Herd Dairy Farms, 2012

Item

Per Worker

Per Cow

Per Tillable Acre


Average 34 Farms: Farm capital* $375,469 $12,026 $4,007 $7,577 Real estate* 5,654 3,562 Machinery & equipment 76,656 2,455 818 Ratios Asset turnover* Operating Expense Interest Expense Depreciation Expense 0.40 0.78 0.02 0.07 Top 50% Farms: Farm capital* $396,464 $ 11,729 $3,746 $7,971 Real estate* 5,481 3,725 Machinery & equipment 78,925 2,335 746 Ratios Asset turnover* Operating Expense Interest Expense Depreciation Expense 0.45 0.74 0.02 0.06 *Excludes rented farms.

LABOR FORCE INVENTORY AND ANALYSIS 34 Small Herd Dairy Farms, 2012

Labor Force

Months

Age

Years of Education

Value of Labor & Management

Average 34 Farms: Operator number 1 13.3 49 14 $ 35,397 Operator number 2 2.6 46 14 7,088 Operator number 3 0.2 80 14 441 Family paid 1.5 Family unpaid 4.9 Hired 6.3 Total 28.9 / 12 = 2.41 Worker Equivalent 1.22 Operator/Manager Equivalent Top 50% Farms: Total 30.0 / 12 = 2.50 Worker Equivalent Operator’s 1.18 Operator/Manager Equivalent Labor Average 34 Farms Top 50% Farms Efficiency Total Per Worker Total Per Worker Cows, average number 73 30 85 34 Milk sold, pounds 1,405,521 583,809 1,767,944 707,178 Tillable acres 220 91 258 103

Average 34 Farms Top 50% Farms Labor Costs

Total

Per Cow

Per Cwt.

Total

Per Cow

Per Cwt.

Value of operator(s) labor ($2,550/month) $ 41,964 $ 574 $ 2.99 $ 42,406 $ 497 $ 2.40 Family unpaid ($2,550/month) 12,688 174 0.90 14,274 167 0.81 Hired 19,091 261 1.36 19,970 234 1.13 Total Labor $ 73,743 $ 1,009 $ 5.25 $ 76,650 $ 898 $ 4.34 Machinery Cost $65,461 $ 896 $ 4.66 $78,226 $ 917 $ 4.42 Total Labor & Machinery $139,204 $ 1,905 $ 9.90 $154,876 $ 1,815 $ 8.76 Hired labor expense per hired worker equivalent $29,109 $29,224 Hired labor expense as % of milk sales 6.8% 5.7%

23

COMPARATIVE ANALYSIS OF THE FARM BUSINESS

Comparison to Top 50 Percent Comparing your business with average data from DFBS cooperators that participated in both of the last two years can be helpful in establishing your goals for these parameters. Both the average of the same 25 farms and the top 50% of farms based on rate of return of all assets without appreciation are presented below. It is equally important for you to de-termine the progress your business has made over the past two or three years, to compare this progress to your goals, and to set goals for the future.

PROGRESS OF THE FARM BUSINESS Same 25 Small Herd Dairy Farms, 2011 & 2012

Average of Same 25 Farms* Average of Same 14 Top 50% Farms* Selected Factors 2011 2012 2011 2012 Size of Business Average number of cows 75 77 83 87 Average number of heifers 64 64 74 75 Milk sold, lbs. 1,487,710 1,510,445 1,751,538 1,853,929 Worker equivalent 2.43 2.47 2.51 2.60 Total tillable acres 225 231 253 265 Rates of Production Milk sold per cow, lbs. 19,783 19,586 21,012 21,240 Hay DM per acre, tons 2.2 1.90 2.0 1.7 Corn silage per acre, tons 16.3 16.80 17.1 16.8 Labor Efficiency Cows per worker 31 31 33 34 Milk sold/worker, lbs. 612,226 611,516 697,824 713,050 Cost Control Grain & concentrate purchased as % of milk sales 29% 34% 29% 34% Dairy feed & crop expense per cwt. milk $ 7.92 $ 8.62 $ 8.05 $ 8.67 Labor & machinery costs/cow $ 1,908 $ 1,909 $ 1,890 $ 1,849 Operating cost of producing cwt. of milk $ 15.33 $ 15.32 $ 15.32 $ 14.28 Capital Efficiency** Farm capital per cow*** $ 11,646 $ 12,026 $ 11,639 $ 12,055 Machinery & equipment per cow $ 2,496 $ 2,455 $ 2,408 $ 2,384 Asset turnover ratio*** 0.45 0.40 0.47 0.44 Profitability Net farm income w/o appreciation $ 68,888 $ 45,882 $ 84,601 $ 80,154 Net farm income with appreciation $ 93,149 $ 59,577 $ 112,195 $ 98,428 Labor & management income per operator/manager $ 20,647 $ -2,822 $ 30,353 $ 21,636 Rate of return on equity capital with appreciation 6.0% 0.4% 7.6% 4.9% Rate of return on all capital with appreciation 5.6% 1.2% 6.7% 4.5% Financial Summary Farm net worth, end year $ 690,664 $ 726,163 $ 754,008 $ 821,192 Debt to asset ratio 0.23 0.24 0.25 0.26 Farm debt per cow $ 2,779 $ 2,967 $ 2,944 $ 3,163 *Farms participating both years. **Average for the year. ***Excludes rented farms.

24 RECEIPTS AND EXPENSES PER COW AND PER CWT.

Same 29 Small Herd Dairy Farms, 2011 & 2012

2011 2012 Item Per Cow Per Cwt. Per Cow Per Cwt. Average Number of Cows 70 72 Cwt. of Milk Sold 13,605 13,860 ACCRUAL OPERATING RECEIPTS Milk $4,202 $21.64 $3,821 $19.96 Dairy cattle 216 1.11 250 1.31 Dairy calves 34 0.18 7 0.04 Other livestock 16 0.08 19 0.10 Crops 126 0.65 219 1.14 Miscellaneous receipts 207 1.07 241 1.26 Total Receipts $4,801 $24.72 $4,556 $23.80 ACCRUAL OPERATING EXPENSES Hired labor $ 242 $ 1.25 $ 230 $ 1.20 Dairy grain & concentrate 1,217 6.27 1,302 6.80 Dairy roughage 97 0.50 111 0.58 Nondairy feed 1 0.01 1 0.00 Professional nutritional services 1 0.01 1 0.00 Machine hire/rent/lease 81 0.42 118 0.61 Mach. repair & vehicle exp. 262 1.35 251 1.31 Fuel, oil & grease 210 1.08 204 1.07 Replacement livestock 42 0.22 46 0.24 Breeding 54 0.28 53 0.28 Veterinary & medicine 103 0.53 93 0.49 Milk marketing 227 1.17 233 1.22 Bedding 46 0.24 52 0.27 Milking supplies 98 0.51 80 0.42 Cattle lease 0 0.00 1 0.01 Custom boarding 28 0.14 19 0.10 bST expense 9 0.05 6 0.03 Livestock professional fees 18 0.09 22 0.11 Other livestock expense 51 0.26 45 0.23 Fertilizer & lime 114 0.59 109 0.57 Seeds & plants 72 0.37 84 0.44 Spray/other crop expense 40 0.21 47 0.24 Crop professional fees 3 0.01 0 0.00 Land, building, fence repair 75 0.39 66 0.34 Taxes 81 0.42 93 0.48 Real estate rent/lease 62 0.32 61 0.32 Insurance 73 0.38 64 0.34 Utilities 125 0.64 122 0.64 Interest paid 117 0.60 102 0.53 Other professional fees 13 0.07 19 0.10 Miscellaneous 21 0.11 17 0.09 Total Operating Expenses $3,585 $18.46 $3,649 $19.07 Expansion Livestock 2 0.01 9 0.05 Extraordinary Expense 0 0.00 6 0.03 Machinery Depreciation 251 1.29 214 1.12 Real Estate Depreciation 66 0.34 73 0.38 Total Expenses $3,904 $20.10 $3,951 $20.65 Net Farm Income Without Appreciation $ 897 $ 4.62 $ 604 $ 3.16

25 RECEIPTS AND EXPENSES PER COW AND PER CWT.

Same 16 Top 50% Small Herd Dairy Farms, 2011 & 2012

2011 2012 Item Per Cow Per Cwt. Per Cow Per Cwt. Average Number of Cows 82 86 Cwt. Of Milk Sold 17,041 17,961 ACCRUAL OPERATING RECEIPTS Milk $4,542 $21.77 $4,175 $19.98 Dairy cattle 192 0.92 384 1.84 Dairy calves 37 0.18 10 0.05 Other livestock 10 0.05 12 0.06 Crops 152 0.73 222 1.06 Miscellaneous receipts 231 1.11 249 1.19 Total Receipts $5,164 $24.76 $5,053 $24.18 ACCRUAL OPERATING EXPENSES Hired labor $ 243 $ 1.16 $ 234 $ 1.12 Dairy grain & concentrate 1,284 6.16 1,386 6.63 Dairy roughage 111 0.53 124 0.59 Nondairy feed 0 0.00 0 0.00 Professional nutritional services 2 0.01 1 0.00 Machine hire/rent/lease 99 0.47 126 0.61 Mach. repair & vehicle exp. 275 1.32 247 1.18 Fuel, oil & grease 224 1.07 213 1.02 Replacement livestock 35 0.17 32 0.15 Breeding 62 0.30 62 0.29 Veterinary & medicine 108 0.52 91 0.43 Milk marketing 247 1.18 250 1.19 Bedding 51 0.25 67 0.32 Milking supplies 104 0.50 84 0.40 Cattle lease 0 0.00 2 0.01 Custom boarding 15 0.07 12 0.06 bST expense 10 0.05 5 0.03 Livestock professional fees 19 0.09 20 0.10 Other livestock expense 51 0.24 49 0.23 Fertilizer & lime 144 0.69 135 0.64 Seeds & plants 84 0.40 95 0.45 Spray/other crop expense 41 0.20 48 0.23 Crop professional fees 4 0.02 0 0.00 Land, building, fence repair 68 0.33 66 0.31 Taxes 78 0.37 82 0.39 Real estate rent/lease 64 0.30 63 0.30 Insurance 69 0.33 63 0.30 Utilities 126 0.61 123 0.59 Interest paid 118 0.57 101 0.48 Other professional fees 13 0.06 23 0.11 Miscellaneous 19 0.09 20 0.10 Total Operating Expenses $3,768 $18.06 $3,821 $18.28 Expansion Livestock 1 0.00 14 0.06 Extraordinary Expense 0 0.00 0 0.00 Machinery Depreciation 256 1.23 217 1.04 Real Estate Depreciation 75 0.36 82 0.39 Total Expenses $4,100 $19.65 $4,134 $19.77 Net Farm Income Without Appreciation $1,064 $5.10 $ 919 $ 4.40

26 Regional Farm Business Chart

The Farm Business Chart is a tool which can be used in analyzing your business. Compare your business by draw-ing a line through or near the figure in each column which represents your current level of performance. The five figures in each column represent the average of each 20 percent or quintile of farms included in the regional summary. Use this in-formation to identify business areas where more challenging goals are needed.

FARM BUSINESS CHART FOR FARM MANAGEMENT COOPERATORS 34 Small Herd Dairy Farms, 2012

Size of Business Rate of Production Labor Efficiency

Worker Equiv- alent

No. of

Cows

Pounds Milk Sold


Tons Hay Crop DM/Acre

Tons Corn Silage

Per Acre

Cows Per

Worker

Pounds Milk Sold

Per Worker

(14)* (12) (12) (12) (11) (11) (14) (14)

3.63 116 2,538,685 24,365 3.5 21 44 946,728 2.90 98 1,792,414 22,041 2.3 17 37 664,533 2.45 73 1,302,030 19,478 1.8 15 32 585,149 1.90 49 1,017,420 16,909 1.5 9 26 486,893 1.34

37 538,937 12,008 0.8 0 18 282,783

Cost Control Culling Rates

Grain Bought

Per Cow

% Grain is of Milk Receipts

Machinery Costs

Per Cow

Labor & Machinery

Costs per Cow

Feed & Crop Expenses Per Cow

Feed & Crop Expenses Per

Cwt. Milk

Death Rate

Sell Rate

(12) (12) (14) (14) (12) (12) (12) (12) $ 756 24% $ 481 $ 1,363 $ 936 $ 6.19 0.0% 8.4% 1,115 31 715 1,647 1,379 7.66 1.9 19.4 1,329 34 856 1,853 1,734 8.69 4.0 24.6 1,575 39 1,026 2,212 1,957 10.05 5.4 29.9 1,862

48 1,430 2,919 2,310 11.47 10.5 35.0

Value and Cost of Milk Production Profitability

Milk Receipts Per Cow

Operating Cost Production Per Cwt.

Total Cost Production Per Cwt.

Net Farm Income with Appreciation

Net Farm Income w/o Appreciation

Labor & Mgmt. Income Per Operator

Change in Net Worth with

Appreciation

(12) (12) (12) (4) (4) (4) (8) $ 4,924 $ 12.81 $ 19.34 $ 138,386 $ 107,283 $ 39,493 $ 124,038 4,371 13.96 21.36 84,103 72,236 17,636 65,852 3,886 14.94 22.88 55,522 45,059 6,449 35,585 3,387 15.98 26.01 34,277 27,372 -7,878 20,313 2,436

21.97 37.96 -25,338 -35,359 -71,377 -38,165

*Page number of the participant's DFBS where the factor is located.

27 Supplementary Information

Each year DFBS cooperators volunteer to complete supplementary data collection forms looking at selected man-

agement aspects of the business or specific research areas being studied. This is in addition to the normal DFBS data col-lection form. One area that was examined this year was the source of dairy replacements.

SOURCE OF DAIRY REPLACEMENTS 15 New York Dairy Farms, 2012

Animals Entering Herd Average

Number calving in 2012 for first time 353 Animals purchased, %* 4.0% Animals raised by farm, %** 96.0% Current Heifer Inventory

Raised on dairy, % 87.1% Raised by a custom grower, % 12.8%

* Animals purchased are animals purchased from a different farm and were not the farms genetics. **Animals raised by farm are animals that were born on the farm and entered the herd, which includes animals raised by the farm or custom grower.

On the average farm, 353 animals calved for the first time in 2012. The breakdown on the source of these animals was 4.0 percent purchased and 96.0 percent raised on the farm. Of the current heifer inventory, 87.1 percent were raised on the dairy and 12.8 percent were raised by a custom grower. There is increased interest in evaluating the dairy replacement enterprise. Milk Income and Marketing Expense Breakdown

Starting January 1st, 2000, the northeast switched to multiple components pricing, which changed the format of the

milk check and how farmers received payment for their milk. To examine the breakdown of the gross milk income and the marketing expenses, 98 farms filled out a detailed form for all the different sources of income for milk sales and the milk marketing expenses on an accrual basis. This information is reported in the following two tables. The tables are divided into six different areas, each representing a different area of income or expenses.

The first section looks at the value of the milk components on a per cwt. basis. The second area looks at the Pro-ducer Price Differential. The third area looks at the premiums a farm receives. Any premiums not specifically noted as quality or volume-related are included in market premiums. The fourth area looks at the expenses associated with market-ing milk. A line item in this section is the expense associated with utilizing forward contracting or hedging programs to market milk, such as commissions or broker fees. The fifth area is income from forward contracting or hedging programs. The sixth area is the patronage dividends or refunds from the milk cooperatives. Equity purchased in the milk cooperative utilizing a monthly deduction from the milk check or a percent of the patronage dividend is treated as a capital purchase and is not a milk marketing expense. The cumulative total for these six areas is the net price received on farms. For participat-ing farms, the net farm price can be found on page 13 of the DFBS report.

The table on page 9 reports the averages for these different areas. The table on page 10 contains the range for each of the individual lines of the report. This table is in farm business chart format with each item sorted independently and ranked by fifths. Numbers for the different areas will not add to the totals for that quintile or to the net price received be-cause the highest farms for each item were averaged, not the same farms throughout the six areas. This table shows the range of income and expenses received by farms for all the different areas.

For your individual farm, compare your accrual numbers following this same format to look at how you compare to other farms in your region and to identify possible areas to generate additional revenue.

28

AVERAGE* MILK INCOME AND MARKETING REPORT 20 Small Herd Dairy Farms, 2012

Pounds Percent Price/Pound Total $/Cwt of Milk

BASE FARM PRICE Butterfat 57,989 3.87% $1.72 $ 99,866 $6.67 Protein 46,769 3.12% $3.05 $142,509 $9.52 Solids 87,024 5.81% $0.41 $ 35,284 $2.36 Total Component Contribution $ 18.55

PPD 1,496,897 $ 7,658 $ 0.51 Base Farm Price $ 19.06 Premiums Quality $ 3,654 $0.24 Volume $ 1,449 $0.10 Market Premiums $ 5,613 $0.37 Total Premiums $ 0.72 BASE FARM PRICE + PREMIUM $ 19.78 Deductions Promo $ 2,303 $0.15 Hauling + Stop Charges. $ 14,577 $0.97 Market Fees & Coop Dues $ 1,173 $0.08 Total Deductions $ 1.21 BASE FARM PRICE + PREMIUMS - DEDUCTIONS $ 18.57 Marketing Programs Futures Contracts, Forward Contracting, Etc. $ 0 $ 0.00 Total Marketing Income $ 0.00 Patronage Dividends $ 5,364 $ 0.36 NET PRICE RECEIVED ON FARM, ALL SOURCES $ 18.93 PPD - Hauling, per cwt. $ -0.46 PPD - Hauling + Market Premiums, per cwt. $ -0.09 Net Marketing Value, per cwt. (PPD + Total Preimums – Total Deductions) $ 0.02

*Each calculation of an average is independent of the others. Therefore, math operations on the detail will not result in the totals. However, detail in the "$/Cwt of Milk" column will result in the totals. The average herd size of these 20 farms is 76 cows.

29

MILK PRICE INFORMATION BY QUARTILE* (Each Category Sorted Independently)


Lowest Quartile

Highest Quartile

Butterfat, % 3.69 3.82 3.93 4.20 Protein, % 3.00 3.10 3.13 3.33 Other Solids, % 5.64 5.76 5.86 6.29 Butterfat, $ per Cwt. 6.32 6.60 6.79 7.07 Protein, $ per Cwt. 9.16 9.41 9.58 10.00 Other solids, $ per Cwt. 2.29 2.35 2.37 2.46 Total Component Value per Cwt. $ 17.94 $ 18.32 $ 18.66 $ 19.47 PPD, $ per Cwt. 0.16 0.45 0.60 0.94 Base Farm Price per Cwt. $ 18.48 $ 18.95 $ 19.26 $ 19.85 Quality, $ per Cwt. 0.03 0.14 0.23 0.62 Volume, $ per Cwt. 0.00 0.03 0.11 0.17 Market premium, $ per Cwt. 0.03 0.23 0.40 1.13 Total Premium, $ per Cwt. 0.24 0.52 0.74 1.61 Base Farm Price + Premiums per Cwt. $ 19.02 $ 19.49 $ 20.03 $ 21.11 Promotion, $ per Cwt. 0.15 0.15 0.15 0.15 Hauling, $ per Cwt. 0.48 0.83 1.11 1.38 Market fees & coop dues per Cwt. 0.00 0.04 0.08 0.15 Total Marketing Expenses per Cwt. $ 0.61 $ 1.08 $ 1.38 $ 1.62 Base + Premiums – Deductions per Cwt. $ 17.75 $ 18.35 $ 18.78 $ 20.10 Futures contract, forward contracting, $ per Cwt. 0.00 0.00 0.00 0.00 Total Marketing Income, $ per Cwt. $ 0.00 $ 0.00 $ 0.00 $ 0.00 Patronage Dividends, $ per Cwt. $ 0.00 $ 0.03 $ 0.27 $ 0.79 Net Price Received From All Sources, $ per Cwt. $ 17.95 $ 18.52 $ 19.24 $ 20.34 PPD - hauling, $ per Cwt. -0.82 -0.45 -0.38 0.01 PPD - hauling + mkt premiums, $ per Cwt. -0.64 -0.25 -0.01 1.04 Net Marketing Value, $ per Cwt. (PPD + Total Premiums – Total Deductions)

- 0.55

-0.13

0.11

1.16

*Each calculation of an average is independent of all others. Therefore, math operations on the detail will not result in the totals.

30 New York State Farm Business Charts The Farm Business Chart is a tool which can be used in analyzing a business by drawing a line through the figure in each column which represents the current level of management performance. The figure at the top of each column is the average of the top 10 percent of the 190 farms for that factor. The other figures in each column are the average for the sec-ond 10 percent, third 10 percent, etc. Each column of the chart is independent of the others. The farms which are in the top 10 percent for one factor would not necessarily be the same farms which make up the top 10 percent for any other fac-tor. The cost control factors are ranked from low to high, but the lowest cost is not necessarily the most profitable. In some cases, the "best" management position is somewhere near the middle or average. Many things affect the level of costs, and must be taken into account when analyzing the factors.

FARM BUSINESS CHART FOR FARM MANAGEMENT COOPERATORS 190 New York Dairy Farms, 2011

Size of Business Rates of Production Labor Efficiency

Worker Equiv- alent

No. of

Cows

Pounds Milk Sold



Tons Corn Silage

Per Acre

Cows Per

Worker

Pounds Milk Sold

Per Worker (14)* (12) (12) (12) (11) (11) (14) (14)

37.4 1,706 43,858,755 27,706 5.3 23 63 1,458,922 22.9 1,021 26,336,021 26,440 4.4 20 51 1,243,329 17.6 785 20,082,453 25,674 3.9 18 48 1,167,110 14.1 612 14,432,284 24,907 3.6 18 45 1,088,025 10.6 466 11,020,599 24,206 3.4 17 42 1,010,627

----------------------------------------------------------------------------------------------------------------------------------------------------------- 7.0 325 7,344,654 23,151 3.1 16 40 925,116 4.7 174 3,679,214 21,982 2.8 15 37 793,037 3.1 108 2,120,345 20,278 2.3 14 33 667,413 2.3 69 1,296,787 17,715 2.1 13 28 550,182 1.6 45 726,923 12,283 1.6 10 21 343,454

Cost Control Grain

Bought Per Cow


Machinery Costs

Per Cow

Labor & Machinery

Costs Per Cow



Cwt. Milk (12) (12) (14) (14) (12) (12)

$651 18% $493 $1,152 $898 $5.24 1,014 23 651 1,413 1,300 6.42 1,136 26 716 1,533 1,473 6.94 1,258 27 779 1,625 1,617 7.24 1,384 28 843 1,691 1,739 7.55 ----------------------------------------------------------------------------------------------------------------------------------------------------------- 1,475 29 901 1,759 1,827 7.82 1,564 31 960 1,842 1,936 8.19 1,653 32 1,038 1,933 2,030 8.61 1,731 34 1,126 2,102 2,150 9.24 1,947 38 1,384 2,606 2,388 10.66 *Page number of the participant's DFBS report where the factor is located.

31

FARM BUSINESS CHART FOR FARM MANAGEMENT COOPERATORS

190 New York Dairy Farms, 2011

Milk Receipts Per Cow

Milk Receipts Per Cwt.

Operating Cost Milk Production

Per Cow

Operating Cost Milk Production

Per Cwt.

Total Cost Milk Production Per Cow

Total Cost Milk Production Per Cwt.

(12) (12) (12) (12) (12) (12) $6,127 $23.60 $1,932 $12.19 $3,184 $16.71 5,705 22.51 2,646 13.62 3,969 17.95 5,520 22.08 3,015 14.29 4,328 18.65 5,369 21.81 3,355 14.98 4,506 19.22 5,188 21.63 3,601 15.53 4,650 19.75 ----------------------------------------------------------------------------------------------------------------------------------------------------------- 4,959 21.41 3,740 16.05 4,757 20.34 4,719 21.21 3,881 16.62 4,910 21.30 4,381 21.00 4,083 17.35 5,104 22.92 3,837 20.75 4,353 17.88 5,317 25.38 2,658 20.24 4,711 19.90 5,728 31.41

Profitability Net Farm Income

Without Appreciation Net Farm Income

With Appreciation Labor &

Management Income

Total Per

Cow Operations

Ratio

Total Per

Cow Per

Farm Per

Operator (4) (12) (4) (4) (12) (4) (4)

$2,341,294 $1,900 0.31 $2,707,050 $2,395 $1,794,884 $864,454

1,264,736 1,606 0.27 1,485,514 1,927 951,356 476,538 867,967 1,344 0.23 1,079,176 1,610 628,200 311,166 616,369 1,165 0.20 792,265 1,395 457,712 212,547 438,110 1,017 0.18 552,379 1,238 289,617 153,689

----------------------------------------------------------------------------------------------------------------------------------------------------------- 274,291 913 0.16 349,944 1,111 150,363 84,765 143,833 773 0.14 185,513 994 66,657 48,741

80,696 612 0.12 109,297 833 29,919 20,449 34,852 399 0.09 56,294 566 -10,042 -8,376

-10,917 -25 -0.01 15,314 222 -90,536 -56,785 Farm Business Charts for farms with freestall barns and 200 cows or less, 200-400 cows, and more than 400 cows; and farms with conventional barns with less than 60 cows and 60 cows and more are shown on pages 35-39. Financial Analysis Chart The farm financial analysis chart on page 32 is designed just like the Farm Business Chart and may be used to assess the financial health of the farm business. Most of the financial measures used in the chart are defined on pages 8, 11, 15 and 22 of this publication. References to DFBS output page numbers for participating dairy farmers are provided in the table headings.

32

FINANCIAL ANALYSIS CHART 190 New York Dairy Farms, 2011

Liquidity (repayment)

Planned

Debt Payments Per Cow

Available

for Debt Service

Per Cow

Cash Flow Coverage

Ratio

Debt Coverage

Ratio

Debt Pay-ments

as Percent of Milk Sales

Debt Per Cow

Working Capital as % of Total Expenses

Current Ratio

(10)* (16) (10) (10) (10) (7) (7) (7) $ 63 $1,607 10.52 13.41 3% $ 133 57% 48.32 283 1,339 3.30 4.56 5 1,137 41 6.16 419 1,157 2.47 3.36 7 1,841 31 3.96 485 989 1.96 2.79 9 2,316 26 3.17 575 867 1.64 2.34 10 2,787 21 2.54 ----------------------------------------------------------------------------------- --------------------------------------------------------------------- 642 750 1.45 1.96 11 3,167 17 2.01 703 641 1.23 1.61 13 3,635 13 1.74 799 558 1.02 1.30 15 4,210 10 1.43 932 444 0.88 0.83 17 4,916 4 1.05 1,446 86 0.24 0.08 25 6,691 -13 0.41

Solvency Operational Ratios Debt/Asset Ratio Operating Interest Depreciation

Leverage Percent Current & Long Expense Expense Expense Ratio** Equity Intermediate Term Ratio Ratio Ratio

(7) (7) (7) (7) (14) (14) (14) 0.01 99% 0.01 0.00 0.61 0.00 0.02 0.12 89 0.09 0.00 0.65 0.01 0.04 0.20 83 0.17 0.01 0.68 0.01 0.04 0.27 79 0.24 0.10 0.70 0.01 0.05 0.35 74 0.27 0.19 0.73 0.02 0.06

----------------------------------------------------------------------------------- --------------------------------------------------------------------- 0.48 68 0.32 0.30 0.75 0.02 0.06 0.61 62 0.37 0.39 0.77 0.03 0.07 0.75 57 0.43 0.49 0.79 0.03 0.08 0.98 51 0.54 0.59 0.82 0.04 0.10 1.91 38 0.73 0.83 0.89 0.08 0.14

Efficiency (Capital) Profitability Asset

Turnover (ratio)

Real Estate Investment Per Cow

Machinery Investment Per Cow

Total Farm Assets

Per Cow

Change in Net Worth

With Appreciation

Percent Rate of Return with Appreciation on:

Equity Investment*** (14) (14) (14) (14) (8) (4) (4) 0.92 $1,960 $662 $6,389 $2,323,290 35% 23% 0.77 2,744 1,032 7,721 1,203,378 25 17 0.70 3,065 1,335 8,235 886,807 22 15 0.65 3,357 1,567 8,929 659,342 19 14 0.61 3,684 1,735 9,627 394,739 16 12

----------------------------------------------------------------------------------- --------------------------------------------------------------------- 0.57 4,277 1,884 10,269 256,529 12 10 0.52 4,745 2,046 11,111 116,070 9 8 0.47 5,543 2,367 11,989 63,416 6 5 0.39 6,721 2,816 13,236 23,571 0 1 0.27 9,736 4,002 16,747 -6,842 -18 -4

*Page number of the participant's DFBS report where the factor is located. **Dollars of debt per dollar of equity, computed by dividing total liabilities by total equity. ***Return on all farm capital (no deduction for interest paid) divided by total farm assets

33 Comparison by Type of Barn and Herd Size When analyzing a dairy farm business by comparing it to a group of farms, it is important that the group of farms have used as many of the same physical characteristics as possible as the farm being analyzed. To assist in this endeavor, dairy farms in the summary have been divided into those with freestall and those with conventional housing. Conventional housing includes stanchion and tiestall barns. Within each group, is a further classification by size of the dairy herd. The table on page 34 includes the average values for the resulting five groups of dairy farms. The average size of farms in the five groups ranges from 45 cows on the small conventional farms to 993 cows on the largest freestall farms. The largest freestall farms averaged the highest milk output per cow and per worker, the lowest total cost of pro-duction and investment per cow, as well as the highest returns to labor, management and capital. Farm business charts have been computed for each of the five housing and herd size categories and are on pages 35-39. By comparing the farm's performance on the most appropriate business chart, a farm manager will be better able to evaluate his or her business performance. Herd Size Comparisons A detailed comparison of profitability, financial situation and business analysis factors across herd sizes is con-tained on pages 48-60 of the 2011 State Summary*. In most years, as herd size increases, the net farm income increases (page 48)*; and that was generally the case for 2011. Net farm income without appreciation averaged $25,530 per farm for the less than 60 cow farms and $1,187,170 per farm for those with more than 900 cows. Return to all capital without ap-preciation generally increased as herd size increased. With herd sizes between 60 and 200 cows, many farms find it diffi-cult to find a low cost combination of technology and labor to produce milk. Thus profits are lower for these herds than other herd sizes. Assets, liabilities and financial measures are presented on pages 55-58*. All herd size categories saw an increase in net worth during 2011. The largest herd size category experienced an increase in net worth of $1,565,749. However, percent equity varied as herd size increased. The 200 to 399 and 600 to 899 herd size categories had the lowest percent equity at 68 percent; while the 100 to 199 herd size category averaged the highest percent equity at 76 percent. Crop yields showed little relationship to herd size, but fertilizer and lime expenses, and machinery cost per tillable acre generally increased as herd size increased (pages 59-60)*. The farms with more than 900 cows averaged more milk sold per cow than any other size category (page 60). With 25,689 pounds of milk sold per cow, farms in the largest herd size group averaged 9.3 percent more milk output per cow than the average of all herds in the summary with less than 900 cows. Farm capital per cow generally decreased as herd size increased. Milk sold per worker increased dramatically as herd size increased, ranging from 403,817 pounds at the lowest herd size category up to 1,144,223 pounds at the largest size category. *Wayne A. Knoblauch, Linda D. Putnam, Jason Karszes, Richard Overton, and Cathryn Dymond, Dairy Farm Management Business Summary, New York, 2011, Charles H. Dyson School of Applied Economics and Management, Cornell Universi-ty, R.B. 2012-01, November 2012.

34

SELECTED BUSINESS FACTORS BY TYPE OF BARN AND HERD SIZE 190 New York Dairy Farms, 2011

Conventional Freestall Item Farms with:

<= 60 Cows

>60 Cows

<=200 Cows

200-400 Cows

>400 Cows

Number of farms 19 16 34 29 81 Cropping Program Analysis Total Tillable acres 162 262 314 695 1,971 Tillable acres rented* 70 111 128 337 961 Hay crop acres* 126 170 185 322 812 Corn silage acres* 16 51 77 241 793 Hay crop, tons DM/acre 2.0 2.9 2.8 3.4 3.5 Corn silage, tons/acre 13.8 15.1 15.7 15.5 16.8 Oats, bushels/acre 36 0 26 62 40 Forage DM per cow, tons 7.3 10.0 8.1 7.5 7.6 Tillable acres/cow 3.6 3.3 2.7 2.1 2.0 Fertilizer & lime expense/tillable acre $30.12 $32.10 $50.37 $53.43 $57.47 Total machinery costs $42,752 $76,737 $117,280 $305,214 $827,012 Machinery cost/tillable acre $265 $293 $341 $428 $420 Dairy Analysis Number of cows 45 79 122 345 993 Number of heifers 36 69 102 289 865 Milk sold, lbs. 753,119 1,560,301 2,552,966 8,372,391 25,195,786 Milk sold/cow, lbs. 16,736 19,656 20,986 24,278 25,369 Operating cost of producing milk/cwt. $15.62 $15.73 $15.80 $15.89 $15.59 Total cost of producing milk/cwt. $26.65 $23.22 $22.14 $19.60 $18.87 Price/cwt. milk sold $21.22 $21.24 $21.65 $21.67 $21.66 Purchased dairy feed/cow $1,092 $1,228 $1,441 $1,612 $1,642 Purchased dairy feed/cwt. milk $6.53 $6.25 $6.87 $6.64 $6.47 Purchased grain & concentrate as % of milk receipts

28%

28%

30%

29%

28%

Purchased feed & crop expense/cwt milk $7.45 $7.45 $8.12 $7.66 $7.56 Capital Efficiency Farm capital/worker $313,036 $330,689 $396,926 $391,603 $431,126 Farm capital/cow $12,939 $11,498 $11,485 $9,187 $9,559 Farm capital/tillable acre owned $6,361 $6,039 $7,487 $8,850 $9,402 Real estate/cow $6,522 $5,120 $5,451 $3,661 $3,865 Machinery investment/cow $2,957 $2,550 $2,170 $1,664 $1,559 Asset turnover ratio 0.36 0.43 0.46 0.67 0.67 Labor Efficiency Worker equivalent 1.87 2.75 3.52 8.09 22.02 Operator/manager equivalent 1.08 1.08 1.56 1.79 2.36 Milk sold/worker, lbs. 403,817 566,524 725,790 1,035,333 1,144,223 Cows/worker 24 29 35 43 45 Labor cost/cow $1,206 $1,000 $870 $800 $817 Labor cost/tillable acre $336 $303 $337 $397 $411 Profitability & Balance Sheet Analysis Net farm income (without appreciation) $25,530 $56,823 $108,118 $370,111 $1,187,170 Labor & management income/operator $-6,817 $8,089 $29,650 $145,678 $367,715 Rate return on all capital with appreciation 1.6% 3.2% 5.7% 13.2% 14.5% Farm debt/cow $3,654 $2,295 $2,813 $2,900 $3,095 Percent equity 73% 80% 76% 69% 69% *Average of all farms, not only those reporting data.

35

FARM BUSINESS CHART FOR SMALL CONVENTIONAL STALL DAIRY FARMS 19 Conventional Stall Dairy Farms with 60 or Less Cows, New York, 2011


Worker Equiv- alent

No. of

Cows

Pounds Milk Sold



Tons Corn Silage

Per Acre

Cows Per

Worker

Pounds Milk Sold

Per Worker (14)* (12) (12) (12) (11) (11) (14) (14)

2.45 52 1,060,903 22,928 2.5 19 34 639,886

2.15 49 1,000,778 20,391 2.2 17 29 508,524

1.90 47 830,676 18,419 2.1 15 25 423,294

1.63 43 623,732 13,630 1.9 12 21 303,771

1.36 36 326,453 8,627 1.4 9 18 219,300

Cost Control Grain

Bought Per Cow


Machinery Costs

Per Cow

Labor & Machinery

Costs Per Cow



Cwt. Milk (12) (12) (14) (14) (12) (12)

$356 15% $532 $1,445 $530 $4.51

829 26 699 1,957 1,038 6.68

1,097 30 1,066 2,202 1,316 7.73

1,228 32 1,193 2,496 1,543 8.74

1,418 39 1,397 3,016 1,758 10.12

Value and Cost of Production Profitability

Milk Receipts

Operating Cost Producing Milk

Total Cost Production

Net Farm Income Without Appreciation

Labor & Mgmt. Income

Change in Net Worth

Per Cow Per Cwt. Per Cwt. Total Per Cow Per Operator w/Appreciation (12) (12) (12) (4) (12) (4) (8)

$1,896 $12.62 $20.91 $70,861 $1,462 $38,133 $95,059

2,895 14.37 24.99 41,125 872 9,259 42,317

3,885 15.88 27.63 19,609 439 -10,914 17,409

4,353 17.04 33.22 10,766 239 -20,832 8,337

4,769 22.83 40.66 -3,376 -67 -38,229 -10,918

*Page number of the participant’s DFBS report where the factor is located.

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FARM BUSINESS CHART FOR LARGE CONVENTIONAL STALL DAIRY FARMS 16 Conventional Stall Dairy Farms with 60 or More Cows, New York, 2011


Worker Equiv- alent

No. of

Cows

Pounds Milk Sold



Tons Corn Silage

Per Acre

Cows Per

Worker

Pounds Milk Sold

Per Worker (14)* (12) (12) (12) (11) (11) (14) (14)

3.54 111 2,141,481 25,602 5.0 23 45 870,097

3.19 86 1,961,529 22,102 3.9 17 34 643,842

3.06 74 1,628,656 19,478 3.3 16 28 593,902

2.56 68 1,266,317 18,345 2.5 14 25 514,001

1.76 63 992,718 14,422 1.8 11 22 376,121

Cost Control Grain

Bought Per Cow


Machinery Costs

Per Cow

Labor & Machinery

Costs Per Cow



Cwt. Milk (12) (12) (14) (14) (12) (12)

$724 20% $652 $1,511 $1,005 $6.22

1,024 27 861 1,870 1,367 6.96

1,183 28 963 1,983 1,481 7.38

1,336 30 1,093 2,146 1,599 7.85

1,587 36 1,371 2,573 2,010 9.11

Value and Cost of Production Profitability Milk

Receipts Operating Cost Producing Milk




Change in Net Worth


$3,022 $13.06 $19.27 $133,426 $1,604 $75,235 $136,406

3,832 14.95 21.62 99,750 1,271 59,749 68,749

4,301 16.62 24.02 62,735 869 8,195 28,405

4,747 17.47 26.56 19,942 292 -21,279 1,732

5,367 18.48 29.55 -9,598 -102 -53,596 -20,189

*Page number of the participant’s DFBS report where the factor is located.

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FARM BUSINESS CHART FOR SMALL FREESTALL DAIRY FARMS

34 Freestall Barn Dairy Farms with 200 Cows or less, New York, 2011

Size of Business Rates of Production Labor Efficiency Worker Equiv- alent

No. of

Cows

Pounds Milk Sold



Tons Corn Silage

Per Acre

Cows Per

Worker

Pounds Milk Sold

Per Worker (14)* (12) (12) (12) (11) (11) (14) (14) 6.69 196 4,816,821 26,525 4.4 25 54 1,130,181 5.48 178 3,827,953 24,433 4.0 21 46 967,628 4.85 163 3,592,270 23,241 3.5 20 42 870,368 4.08 142 3,099,431 22,359 3.0 18 40 807,104 3.47 126 2,740,776 21,306 2.8 18 38 741,724

------------------------------------------------------------------------------------------------------------------------------------------------------------- 3.28 115 2,418,826 20,714 2.4 17 35 705,607 2.80 108 2,111,667 20,227 2.1 15 34 677,478 2.44 95 1,708,958 18,346 1.9 13 33 632,015 2.13 79 1,354,314 17,028 1.6 12 28 581,307 1.66 62 1,153,216 14,811 1.3 7 24 488,540

Cost Control Grain

Bought Per Cow


Machinery Costs

Per Cow

Labor & Machinery

Costs Per Cow



Cwt. Milk (12) (12) (14) (14) (12) (12)

$986 21% $492 $1,233 $1,202 $5.70 1,040 23 661 1,491 1,345 6.91 1,094 27 759 1,639 1,469 7.30 1,151 30 800 1,719 1,537 7.82 1,295 31 868 1,761 1,668 8.49 ------------------------------------------------------------------------------------------------------------------------------------------------------------- 1,380 32 940 1,809 1,794 9.01 1,484 34 1,042 1,878 1,908 9.49 1,576 35 1,109 1,939 1,980 9.74 1,679 37 1,236 2,145 2,175 10.22 1,844 39 1,637 2,664 2,487 11.96






Change in Net Worth


$5,623 $11.64 $18.13 $309,645 $1,695 $98,221 $273,142 5,303 13.76 19.79 189,815 1,462 75,581 135,100 5,032 14.67 20.73 162,624 1,265 66,482 112,881 4,879 15.34 21.57 130,902 1,152 44,943 102,419 4,663 15.92 22.74 112,521 960 38,683 90,235 ------------------------------------------------------------------------------------------------------------------------------------------------------------- 4,459 16.25 23.26 100,585 817 30,991 73,605 4,360 16.82 24.27 71,173 673 17,544 53,753 4,110 17.83 25.78 55,571 544 129 30,341 3,642 18.44 27.49 33,286 348 -12,266 16,884 3,155 20.59 28.57 4,406 35 -41,130 -78 *Page number of the participant’s DFBS report where the factor is located.

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FARM BUSINESS CHART FOR MEDIUM FREESTALL DAIRY FARMS 29 Freestall Barn Dairy Farms with 201-500 Cows, New York, 2011


Worker Equiv- alent

No. of

Cows

Pounds Milk Sold



Tons Corn Silage

Per Acre

Cows Per

Worker

Pounds Milk Sold

Per Worker (14)* (12) (12) (12) (11) (11) (14) (14) 13.43 492 12,342,242 27,586 5.4 24 66 1,560,317 12.24 429 11,055,460 26,199 5.0 20 53 1,275,873

9.66 403 10,177,139 25,507 4.8 19 50 1,174,836 8.73 394 9,696,525 25,132 3.9 18 48 1,101,010 8.08 373 9,247,542 24,724 3.6 17 45 1,081,307

------------------------------------------------------------------------------------------------------------------------------------------------------------- 7.25 348 8,248,830 24,486 3.4 16 43 1,027,021 6.67 311 7,450,754 24,005 3.2 15 41 1,005,557 6.02 285 6,800,439 22,954 3.0 14 39 941,534 5.77 248 5,866,675 21,971 2.4 13 36 855,463 4.81 214 4,161,591 18,924 2.0 10 30 736,578

Cost Control Grain

Bought Per Cow


Machinery Costs

Per Cow

Labor & Machinery

Costs Per Cow



Cwt. Milk (12) (12) (14) (14) (12) (12)

$902 19% $492 $1,088 $1,170 $5.54 1,168 24 689 1,384 1,499 6.29 1,337 26 750 1,557 1,729 7.10 1,411 26 824 1,620 1,797 7.26 1,459 28 873 1,669 1,892 7.72 ------------------------------------------------------------------------------------------------------------------------------------------------------------- 1,550 29 931 1,727 1,947 7.82 1,651 30 984 1,823 2,012 8.09 1,740 33 1,054 1,870 2,043 8.40 1,782 35 1,095 2,014 2,166 8.99 1,984 38 1,223 2,113 2,616 11.60






Change in Net Worth


$6,223 $12.91 $17.00 $747,370 $1,963 $480,762 $864,087 5,791 13.89 17.83 603,488 1,547 309,922 637,345 5,572 14.40 18.45 533,428 1,353 249,929 447,768 5,415 15.09 19.24 470,467 1,181 207,696 408,127 5,296 15.57 19.50 388,664 1,035 159,165 357,731 ------------------------------------------------------------------------------------------------------------------------------------------------------------- 5,171 15.82 20.00 339,929 976 128,026 313,133 5,118 16.94 20.54 290,788 929 94,696 271,778 4,911 17.78 21.26 243,934 883 62,292 169,348 4,697 18.32 21.95 167,617 647 40,786 111,890 4,049 20.55 24.61 41,177 81 -61,315 28,523 *Page number of the participant’s DFBS report where the factor is located.

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FARM BUSINESS CHART FOR LARGE FREESTALL DAIRY FARMS 81 Freestall Barn Dairy Farms with 500 or More Cows, New York, 2011


Worker Equiv- Alent

No. of

Cows

Pounds Milk Sold



Tons Corn Silage

Per Acre

Cows Per

Worker

Pounds Milk Sold

Per Worker (14)* (12) (12) (12) (11) (11) (14) (14) 47.61 2,200 56,907,808 28,496 5.6 22 60 1,548,611 30.86 1,403 35,558,525 26,903 4.5 20 53 1,364,857 26.14 1,152 30,049,740 26,449 4.2 19 50 1,264,583 23.01 1,020 26,030,101 26,146 3.8 18 48 1,217,166 20.03 923 23,819,465 25,696 3.6 17 46 1,176,958

------------------------------------------------------------------------------------------------------------------------------------------------------------- 18.06 825 21,135,870 25,143 3.4 16 45 1,131,272 16.95 731 18,725,448 24,632 3.2 16 43 1,085,596 15.24 652 15,803,407 24,044 3.0 15 42 1,024,229 13.06 569 13,646,139 23,160 2.7 14 39 951,408 10.68 517 11,938,515 21,472 2.2 13 33 780,879

Cost Control Grain

Bought Per Cow


Machinery Costs

Per Cow

Labor & Machinery

Costs Per Cow



Cwt. Milk (12) (12) (14) (14) (12) (12)

$999 19% $628 $1,304 $1,343 $5.55 1,255 24 694 1,458 1,633 6.56 1,393 26 739 1,515 1,733 6.97 1,488 27 800 1,558 1,799 7.23 1,560 28 845 1,646 1,860 7.51 ------------------------------------------------------------------------------------------------------------------------------------------------------------- 1,600 29 883 1,690 1,968 7.76 1,667 30 928 1,754 2,045 7.98 1,709 32 975 1,837 2,118 8.39 1,804 33 1,041 1,903 2,225 8.69 2,037 36 1,149 2,200 2,397 9.39






Change in Net Worth


$6,272 $12.42 $16.20 $3,175,353 $2,034 $1,101,533 $3,052,327 5,958 13.62 17.46 1,805,062 1,771 739,309 1,881,286 5,740 14.32 17.91 1,493,130 1,612 532,546 1,493,201 5,596 14.89 18.36 1,301,607 1,369 477,512 1,172,062 5,508 15.49 18.79 1,034,126 1,160 398,694 1,023,672 ------------------------------------------------------------------------------------------------------------------------------------------------------------- 5,420 16.10 19.23 919,036 1,050 304,255 918,412 5,328 16.58 19.49 803,853 939 246,846 793,469 5,200 17.13 20.05 657,193 828 194,751 706,356 4,935 17.61 20.48 525,373 729 156,770 547,226 4,683 18.43 22.48 271,438 415 30,792 311,863 *Page number of the participant's DFBS report where the factor is located.

40

IDENTIFY AND SET GOALS If businesses are to be successful, they must have direction. Written goals help provide businesses with an identi-fiable direction over both the long and short term. Goal setting is as important on a dairy farm as it is in other businesses. Written goals are a tool which farm operators can use to ensure that the business continues to move in the desired direction. Goals should be SMART: 1. Goals should be Specific. 2. Goals should be Measurable. 3. Goals should be Achievable but challenging. 4. Goals should be Rewarding. 5. Goals should be Timed with a designated date by which the goal will be achieved. Goal setting on a dairy farm should be a process for writing down and agreeing on goals that you have already given some thought to. It is also important to remember that once you write out your goals they are not cast in concrete. If a change takes place which has a major impact on the farm business, the goals should be reworked to accommodate that change. Refer to your goals as often as necessary to keep the farm business progressing. It is important to identify both objectives (long-range) and goals (short-range) when looking at the future of your farm business. A suggested format for writing out your goals is as follows:

a. Begin with a mission statement which describes why the business exists based on the preferences and

values of the owners. b. Identify 4-6 objectives. c. Identify SMART goals.

Worksheet for Setting Goals I. Mission and Objectives

41 Worksheet for Setting Goals (Continued)

II. Goals What How When Who is Responsible Summarize Your Business Performance The Farm Business and Financial Analysis Charts on pages 26 and 30-32 can be used to help identify strengths and weaknesses of your farm business. Identify three major strengths and three areas of your farm business that need im-provement. Strengths: Needs improvement:

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GLOSSARY AND LOCATION OF COMMON TERMS Accounts Payable - Open accounts or bills owed to feed and supply firms, cattle dealers, veterinarians and other pro-viders of farm services and supplies. Accounts Receivable - Outstanding receipts from items sold or sales proceeds not yet received, such as the payment for December milk sales received in January. Accrual Expenses - (defined on page 5) Accrual Receipts - (defined on page 6) Annual Cash Flow Statement - (defined on page 13) Appreciation - (defined on page 7) Asset Turnover Ratio - The ratio of total farm income to total farm assets, calculated by dividing total accrual operat-ing receipts plus appreciation by average total farm assets. Balance Sheet - A "snapshot" of the business financial position at a given point in time, usually December 31. The balance sheet equates the value of assets to liabilities plus net worth. Capital Efficiency - The amount of capital invested per production unit. Relatively high investments per worker with low to moderate investments per cow imply efficient use of capital. Cash From Nonfarm Capital Used in the Business - Transfers of money from nonfarm savings or investments to the farm business where it is used to pay operating expenses, make debt payments and/or capital purchases. Cash Flow Coverage Ratio - (defined on page 15) Cash Paid - (defined on page 4) Cash Receipts - (defined on page 6) Change in Accounts Payable - (defined on page 5) Change in Accounts Receivable - (defined on page 6) Change in Inventory - (defined on page 4) Culling Rate – Culling rate is calculated by dividing the number of animals that left the herd for culling purposes and that died, by the average number of milking and dry cows for the year. Current Portion - (defined on page 9) Current Ratio – Measures the extent to which current farm assets, if liquidated, would cover current farm liabilities. Calculated as current farm assets at end year divided by current farm liabilities at end year. Dairy (farm) - A farm business where dairy farming is the primary enterprise, operating and managing this farm is a full-time occupation for one or more people and cropland is owned. Dairy Cash-Crop (farm) - Operating and managing this farm is the full-time occupation of one or more people, cropland is owned but crop sales exceed 10 percent of accrual milk receipts. Death Rate – The number of animals that died divided by the average number of milking and dry cows for the year. Debt Coverage Ratio – (defined on page 15) Debt Per Cow - Total end-of-year debt divided by end-of-year number of cows.

43 Debt to Asset Ratios - (defined on page 11) Depreciation Expense Ratio – Machinery and building depreciation divided by total accrual receipts. Dry Matter - The amount or proportion of dry material that remains after all water is removed. Commonly used to measure dry matter percent and tons of dry matter in feed. Equity Capital - The farm operator/manager's owned capital or farm net worth. Expansion Livestock - Purchased dairy cattle and other livestock that cause an increase in herd size from the begin-ning to the end of the year. Farm Debt Payments as Percent of Milk Sales - Amount of milk income committed to debt repayment, calculated by dividing planned debt payments by total milk receipts. A reliable measure of repayment ability, see page 15. Farm Debt Payments Per Cow - Planned or scheduled debt payments per cow represent the repayment plan sched-uled at the beginning of the year divided by the average number of cows for the year. This measure of repayment abil-ity is used in the Financial Analysis Chart. Financial Lease - A long-term non-cancellable contract giving the lessee use of an asset in exchange for a series of lease payments. The term of a financial lease usually covers a major portion of the economic life of the asset. The lease is a substitute for purchase. The lessor retains ownership of the asset. Hired Labor Expense as % of Milk Sales - The percentage of the gross milk receipts that is used for labor expense. Divide accrual hired labor expense by accrual milk sales. Hired Labor Expense per Hired Worker Equivalent - The total cost to the farm per hired worker equivalent. Di-vide accrual hired labor expense by number of hired plus family paid worker equivalents. Income Statement - A complete and accurate account of farm business receipts and expenses used to measure profit-ability over a period of time such as one year or one month. Interest Expense Ratio – Accrual interest expense divided by total accrual receipts. Labor and Management Income - (defined on page 8) Labor and Management Income Per Operator - The return to the owner/manager's labor and management per full-time operator. Labor Efficiency - Production capacity and output per worker. Leverage Ratio - (defined on page 11) Liquidity - Ability of business to generate cash to make debt payments or to convert assets to cash. Net Farm Income - (defined on page 7) Net Farm Income from Operations Ratio - (defined on page 9) Net Milk Receipts – Accrual milk receipts less milk marketing expense. Net Worth - The value of assets less liabilities equal net worth. It is the equity the owner has in owned assets. Operating Costs of Producing Milk - (defined on page 21) Operating Expense Ratio – Total accrual expenses less interest and machinery and building depreciation, divided by total accrual receipts. Opportunity Costs - The cost or charge made for using a resource based on its value in its most likely alternative use. The opportunity cost of a farmer's labor and management is the value he/she would receive if employed in his/her most qualified alternative position.

44 Other Livestock Expenses - All other dairy herd and livestock expenses not included in more specific categories. Other livestock expenses include; bST, DHIC, registration fees and transfers. Part-Time Dairy (farm) - Dairy farming is the primary enterprise, cropland is owned but operating and managing this farm is not a full-time occupation for one or more people. Personal Withdrawals and Family Expenditures Including Nonfarm Debt Payments - All the money removed from the farm business for personal or nonfarm use including family living expenses, health and life insurance, in-come taxes, nonfarm debt payments, and investments. Profitability - The return or net income the owner/manager receives for using one or more of his or her resources in the farm business. True "economic profit" is what remains after deducting all the costs including the opportunity costs of the owner/manager's labor, management, and equity capital. Purchased Inputs Cost of Producing Milk - (defined on page 21) Renter - Farm business owner/operator owns no tillable land and commonly rents all other farm real estate. Repayment Analysis - An evaluation of the business' ability to make planned debt payments. Replacement Livestock - Dairy cattle and other livestock purchased to replace those that were culled or sold from the herd during the year. Return on Equity Capital - (defined on page 9) Return on Total Capital - (defined on page 9) Sell Rate – The number of animals that were sold for culling purposes divided by the average number of milking and dry cows for the year. Solvency - The extent or ability of assets to cover or pay liabilities. Debt/asset and leverage ratios are common measures of solvency. Total Costs of Producing Milk - (defined on page 21) Whole Farm Method - A procedure used to calculate costs of producing milk on dairy farms without using enterprise cost accounts. All non-milk receipts are assigned a cost equal to their sale value and deducted from total farm expens-es to determine the costs of producing milk. Working Capital – A theoretical measure of the amount of funds available to purchase inputs and inventory items after the sale of current farm assets and payment of all current farm liabilities. Calculated as current farm assets at end year less current farm liabilities at end year.

45

INDEX Page(s) Page(s) Accounts Payable ................................................... 5,10 Accounts Receivable .............................................. 6,10 Accrual Expenses ..................................................... 5,7 Accrual Receipts ...................................................... 6,7 Acreage ..................................................................... 18 Advanced Government Receipts ............................ 9,10 Age ............................................................................ 20 Amount Available for Debt Service .......................... 15 Annual Cash Flow Statement .................................... 13 Appreciation ...................................................... 7,12,20 Asset Turnover Ratio ................................................ 22 Balance Sheet ............................................................ 10 Barn Type .................................................................... 4 Business Type ............................................................. 4 Capital Efficiency ...................................................... 22 Cash From Nonfarm Capital Used in the Business ...................................................... 13 Cash Flow Coverage Ratio ........................................ 15 Cash Paid ..................................................................... 4 Cash Receipts ......................................................... 6,13 Certified Organic Milk Producer ................................. 4 Change in Accounts Payable ....................................... 5 Change in Accounts Receivable .................................. 6 Change in Inventory ................................................. 4,5 Change in Net Worth ................................................. 12 Cost of Term Debt ..................................................... 11 Crop Expenses ........................................................ 5,19 Crop/Dairy Ratios ..................................................... 18 Current Portion ....................................................... 9,10 Current Ratio ............................................................. 11 Dairy (farm)................................................................. 4 Dairy Cash-Crop (farm) .............................................. 4 Debt Coverage Ratio ................................................. 15 Debt per Cow ............................................................ 11 Debt to Asset Ratios .................................................. 11 Deferred Taxes .......................................................... 10 Depreciation ........................................................... 5,11 Depreciation Expense Ratio ...................................... 20 Dry Matter ................................................................. 18 Education ................................................................... 22 Equity Capital .............................................................. 9 Expansion Livestock .............................................. 5,13 Expenses ...................................................................... 5 Farm Business Chart ............................ 26,30-31,35-39 Farm Debt Payments as Percent of Milk Sales ................................................... 15 Farm Debt Payments Per Cow .................................. 15 Financial Analysis Chart ........................................... 29 Financial Lease .......................................................... 10

Income Statement ........................................................ 4 Inflows ....................................................................... 13 Interest Expense Ratio ............................................... 22 Labor & Management Income ..................................... 8 Labor & Management Income Per Operator ............... 8 Labor Efficiency ........................................................ 22 Land Resources ......................................................... 18 Leverage Ratio ........................................................... 11 Liquidity .................................................................... 11 Lost Capital ............................................................... 11 Machinery Expenses ............................................... 5,19 Milking Frequency ...................................................... 4 Milk Production ......................................................... 20 Milking System ........................................................... 4 Money Borrowed ....................................................... 13 Net Farm Income ....................................................... 16 Net Farm Income from Operations Ratio .................... 9 Net Investment ........................................................... 11 Net Milk Receipts ...................................................... 21 Net Worth .................................................................. 10 Number of Cows ........................................................ 20 Operating Costs of Producing Milk ........................... 21 Operating Expense Ratio ........................................... 22 Opportunity Cost ......................................................... 8 Other Livestock Expenses ........................................... 5 Outflows .................................................................... 13 Part-Time Cash-Crop Dairy (farm).............................. 4 Part-Time Dairy (farm) ................................................ 4 Percent Equity ...................................................... 10,11 Personal Withdrawals and Family Expenditures Including Nonfarm Debt Payments .................. 13 Principal Payments .................................................... 13 Profitability .................................................................. 6 Purchased Inputs Cost ............................................... 21 Receipts ....................................................................... 6 Record System ............................................................. 4 Repayment Analysis .................................................. 15 Replacement Livestock ................................................ 5 Retained Earnings ...................................................... 12 Return on Equity Capital ............................................. 9 Return on Total Capital ............................................... 9 Rotational Grazing .................................................. 4,19 Solvency .................................................................... 11 Total Costs of Producing Milk .................................. 21 Whole Farm Method .................................................. 21 Worker Equivalent ..................................................... 22 Working Capital ........................................................ 11 Yields Per Acre .......................................................... 18

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